If nothing else, 2020 was humbling. There were many things we thought we knew about the market, about gold, about interest rates and about predicting the future that just turned out to be not so.

In this year-end episode of The Fat Wallet Show we share some thoughts and insights, as well as a nice bottle of bubbles. 

Here’s to a happier 2021.

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Win of the week: Tayo

One thing I do however is set up separate scheduled transfers with different references if I have a more specific goal.

So instead of transferring R100 every month into my EM, I'll have a transfer with reference UPGRADE_KITCHEN of R20, another with R10 for UPGRADE_PHONE_FUND and the rest a normal EM dump.

This way I can just search for UPGRADE_KITCHEN on 22seven and I can see how much I've saved up for that particular goal.

Extra points for using the same UPGRADE_KITCHEN reference when taking out of that 'fund' so I know how much I've spent and how much I have left.

I make sure to keep it simple:

1. Keep those goals as broad and few as possible (I only have 3 at the moment)
2. Don't overthink it.

1 bank account (also 1 banking charge), no excel admin

In honour of Christmas this Friday, this week’s episode is the first ever Fat Wallet fairytale, written by Suzanne for her daughter Nina. 

Happy Holidays, everyone!

Win of the week: Suzanne

I just want to say thank you for the great work that you are doing. I know that we as a society tend to use the word EMPOWERING quite loosely, but there is no better way to describe how I personally have experienced this whole journey into personal finance. I also feel it has made me a better parent to my kids – that can now guide and empower them on their own road to financial independence. 

I attach a little Christmas Fairytale I wrote for my daughter,  that I hope you will enjoy – and as a little ode to a Fairy Godmother that you may recognize……

A CHRISTMAS FAIRYTALE FOR MY DAUGHTER

As smart as a whip, and with a feisty personality to match,

Princess Nina was considered by all to be quite the catch.

But frowns of worry have been darkening her day,

For on the eve of her sixteenth birthday, she was unsure of her way…….

“OH”, she cried, while munching on her two-minute noodles,

“This world has to offer me oodles and oodles,

Yet I am unsure of what I need to do!

I know I am a Princess, and being one too,

Cinderella and Rapunzel I should probably like you,

And don’t forget Snow White, she is in the mix too.”

“But, being rescued has never really been my vibe,

I think I am more part of the Katniss Everdeen tribe.

I wear my hair in a bob, and can really whack a hockey ball,

I don’t really mind people, but love dogs more than all.”

“I have no desire to be rescued by a prince,

To me that sounds about as appealing as a bowl of pets mince!

I don’t want to toil away my days in some remote castle tower,

I want to learn Korean, travel the world and find my own Power!”

It was then that it happened, in a flash she appeared,

The extremely tall fairy godmother, all mothers-in-law feared…

She was known through the land from north to south,

For her sensible advice ….and her potty mouth.

“Girl”she exclaimed, ”I heard your pleas,

And I think you are cooler than the fucking bee’s knees,

So in your future there will be no dwarfs, prince’s or even a count…..

What you get is a Tax Free Savings Account.

With the whip of her wand, she quickly set about,

to set up an Easy Equities TFSA account….

“That is it”, she cried,” my magic is done!”

“Now, my dear princess, starts all the fun.”

“You will go out into the world, and chase those dreams!,

But you will also be smart, and live within your means.

You will graft at your craft, and your joy will be astounding,

You will also be saving a shitload, and experience the magic of compounding.”

“This blessing and wisdom I bestow upon you,

Is not one to be horded, but for you to share with other princesses too.

So should Cinderella come crying about her boring days,

Or Rapunzel curse about her man’s whoring ways…….”

“You can exclaim: “Girl, I hear you cries,

so let me sort for you, the truth from the lies…..

You don’t need to live your life as prescribed,

Where fate is fate, and choice is denied.

You don’t need a blesser, or a large inheritance amount,

You need a Tax Free Savings Account!”

Investing history teaches us success is all about asset allocation, as Grant Locke explains in this presentation. History is unfortunately annoyingly silent on what precisely the best asset allocation would be. Where does that leave those of us investing for the long haul?

Should we pick a mix and stick to it? Should we adapt our asset allocation mix to suit the current market conditions? While Ash asks this important question in relation to a retirement product, it’s a question each DIY investor would have to answer for themselves.

This is an excellent way to end our Fat Wallet year, because we’re once again reminded that intentionality and mindfulness matter when it comes to money management. 

2020 gave us all a lesson in having high expectations of a new year, so this year I won’t toast 2021. Instead, let’s all raise a glass to the end of 2020 and have that be that.

Thanks for listening!

Although they’ve fallen out of fashion, we like retirement products. In addition to a generous tax break, retirement funds prevent us from cheating our future selves out of money to do luxurious things like live indoors and eat food. 

That said, if you’re prioritising investments, retirement products might not be the best place to start, as Dylan points out this week. At the beginning of your career, your tax bracket is quite low. Much as we like tax breaks, it might not be the best use of your investment money.

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Win of the week: Stella

Thanks so much for your absolutely fantastic show – I have learned SO much from you and Simon. I think of it as The Gospel According to Bubbles and Chuckles. I’m learning slowly and not there yet, but doing oh so much better with my money.

My mother is 89 and has just sold the life rights to her cottage in a retirement village she was living in (she moved to another establishment where she pays a very low monthly rent of R5,900 – can you believe that?? We were so lucky to get this – it’s a fabulous place in a small town and working out well).

She will receive R451,000 from the sale and I am wondering what she should do with this money to avoid taxes and fees.

She really doesn’t have much money and her income is very low, between her pension and an annuity she gets just under R10,000/month, so my brother and I supplement her expenses – we split her rent in 3, covering various expenses.

Her medical bills are a nightmare – her medical aid and gap cover sets her back R4100/month, and she has just been prescribed heart medication which costs R2,200/month, that the medical aid won’t cover. That’s R6,300/month on medical shit.

Anyhow – she will need to draw on this money to cover said expenses, but it would be great to identify an investment option that allows the money to earn interest, but not have it tied up for years.

Dylan

If I am responsible enough to not use it for living costs it seems like a good place for my money: 

It is saving me on a guaranteed interest rate which (even at this stage where the repo rate is so low) is higher than inflation

My understanding is that I will never have any tax implications on these savings since it is not actually interest that I am "earning".

The only negative I can see is the whole "don't have all your eggs in one basket" saying, which also seems like it is not exactly applicable in this case. Even if something bad happens to my house or the property market, I would still be liable for the amount owed to the bank. So whether I have big savings in my home loan or in other investments, the loss would be the same.

Since I am at the early stage of my career, I benefit the least in terms of tax. I only expect my salary to grow from here on, so later in my career I would benefit much more. So should I not be prioritizing TFSAs? My very basic understanding would explain that RAs let you reap the reward now and pay tax later, where TFSA let you pay now and reap the reward later. 

My current idea is to contribute the max of R6k per month between myself and my wife to TFSA. After that we can consider RAs and other investments. Then this ties up with my first question: would it not be a good idea to then take what's left after TFSA and contribute that to my home loan? This way, I could really quickly pay off my home loan and only after that start contributing to an RA again. At that point, I would need a new place for my emergency fund, but cash investments should be fine?

If I stop contributing to a RA and rather contribute to a TFSA and my home loan (or any other investment), do I need to tell my employer that? Currently they pay me my salary and I contribute to my RA, but they do specify my RA contribution on my PAYE. Can I leave them and just save the tax I should pay and give the money to SARS at the end of the tax year or is that not legal?

Herman

I have been contributing to my TFSA the max amount for 5years now. 

This has been my only savings after my emergency fund. My student debt was low and I managed to pay it off in 3years.

I have recently been approached to work in New Zealand, and now have too many options to consider - please help:

• What happens to my TSFA monies if i only work overseas, but plan to return to SA some point in the future? Am i still eligible for a TSFA, and can i continue to make my yearly contribution?
• Is there any advantage for me to file for tax emigration?
• Relating to above - I understand NZ and SA have a double tax agreement - Does this mean no SA tax? or just SA tax where the NZ tax 'stops'? (So the difference between my SA tax% and NZ% would still be payable in SA?)

Tsebang

I was invited to a presentation about Bitcoin Mining, the company that is mining the Bitcoin is Mining City I'm not sure if it is a scam or not. Could you please check and advise? I have a bad feeling about this. They are promising huge returns after 3 years. Candice 

What I can tell you is that they are not a platform, so there is no option of selecting external funds when you are not happy with performance. They offer only tracker funds which in general are 0.95% and they only have one actively managed unit trust fund. So the potential EAC would be 0.95 for AMF and if there is an advisor you can add a further 0 – 1.15% so potentially they would be very cheap. So it is extremely important to understand what your selected fund is tracking, currently the 1 yr return on their medium equity fund is 0.2% and they do not have any funds that offer guarantees.

If you are looking for a similar product from Old Mutual it would be our OM Funds only option through wealth which also does not have an admin fee and our tracker funds come in slightly cheaper than 10x at between 0.55 and 0.9 and with a far superior actively managed fund range including offshore.

When you are looking at the optimal plan, you are not buying it because it is cheap, you are buying for possibly the underlying guarantee that your fund may have and then for the future bonuses from year five until maturity.

I would think very carefully before considering moving retirement funds to 10X for the reasons given above…in view of NO GUARANTEESand NO BONUSES paid going forward.Shane

Thank you for a great show and for making me laugh at least N+1 times during each podcast. 

Please share your thoughts on trading with a Tax-free account.  I've dumped R15k in mine a few weeks ago and opened several ETFs, (S&P500, NASDAQ 100, etc.), and split it evenly.  I am a daily trader using equities. I’m wondering if the same can be done with Tax-free ETFs, while staying below the annual contribution limit but maximizing profits?  What implications are there that you are aware of?

Tim

I’m 43 and my wife and I are debt free since the beginning of this year. House access bond is basically paid off, R10k left to keep the facility open, but it also is my emergency fund.

I maxed my TFIA at Standard Bank with a couple of ETFs,

I moved my 20 year old RA’s from Sanlam and Old Mutual to Outvest – boy did I get shafted in 20 years!

I still have a Policy with Sanlam. I want to cash it in, but want to use it to my maximum long term benefit. Should I put it as a lump sum in my RA or rather buy ETFs with it?Ross 

I realize it's a massive double up and need to streamline the portfolio, I just can't decide what to hold onto and what to sell. 

I have also been quite interested in the SYG4IR. I just can't help but think this is the way of the future: clean tech, autonomous vehicles, drones, solar, space the list goes on. If I put a bit of money into it now and let that grow for 30 years who knows what the value of it might be by then, which brings me to my questions:

1. Is there a way of telling if an index is a value buy? I know that indices trade at "fair value" but is that really the case? Take the S&P 500 right now as an example. There are four or five Tec stocks that are keeping the whole thing afloat, and making new highs, while the Russell 2000 has bearly even touched the March highs. I know your advice is always "time in the market beats trying to time the market" but I'm sitting on my money at the moment and haven't been buying as I just can't help but think the market is way overvalued at the moment? 
2. How have all these massive stimulus packages by governments worldwide affected the markets? Particularly the major indices. Are we now just in a massive debt euphoria pretending that everything is awesome and another crash is inevitable? Could there possibly be a better buying opportunity not far down the road? I'm just a country peasant but even I can see that there's much more to this than meets the eye.Jaco

I only recently discovered that I am completely undercooked in terms of retirement. I had some investments, a bad RA, and some unit trusts for my kids with Allan Gray. (expensive AF)

But was never aware of TFSA's and ETFs, etc...

So I discovered Easy Equities, discovered your podcasts, through advice from my brother in law.

Since then I have devised an aggressive plan to get back on track. Paid off my huge credit card debt and now only left with 2 vehicles.

So, a couple of questions / thoughts.

Priority 1: Max out TFSA for myself and my wife each year.

Priority 2: Invest long term for my kids (2) - TFSA and other

Priority 3: Save for deposit on my first home

Thereafter invest what I can into the market.

What would be a highly aggressive 1 year investment to save for a deposit?

And what would the TAX implications be on that investment?

Prineshen

I am 26 and a budding young investor who started around 3 years ago. My strategy is mainly focused on ETFs in my TFSA  with the rest into individual stocks picks and bitcoin for a bit of fun/speculation.

I understand the importance of diversification in a portfolio. However given South Africa's history of fraud scandals such as Steinhoff etc, I have tried to implement a further layer of diversification across brokers and therefore tried to diversify my investments across Easy Equites, Satrix and Sygnia, although I know Easy and Satrix are owned by the Purple Group. 

What are the chances of one day waking up and seeing all our accounts at 0?  

In our second Fast Fatty, we spoke about Suzanne’s PPS account. PPS felt our assessment of their product was inaccurate. We offered them a right of reply. Read their reply here.

Pru has had a rough start to her investment career. She had a financial advisor she was struggling to shake off. Just as she worked up the courage to let them go, the advisor got fired for committing fraud. This shocking news encouraged Pru to take a closer look at her investments. She was not happy with what she found.

Many of you have expressed your frustration at the returns you’re getting from your investments this year. In this episode we help you and Pru figure out exactly what happened. As always, we explain how a high fee puts you at a disadvantage from the outset. Next, we discuss asset allocation, diversification and the general madness of the market. 

Being able to read investment documents is an important skill to develop. We wrote three articles to help you make sense of these documents. You can find them here, here and here. 

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Pru 

Discovery gave me a call and told me they were doing a forensic investigation into my financial advisor. It turns out they forged my signature on a policy document, as such Discovery did the heavy lifting for me and took them off my policies. 

The rage regarding the forgery forced me into action. I started the process of moving my TFSA from Sanlam to Easy. This led to me scrutinising my TFSA portfolio and you two won't believe this! (Or maybe you will) My portfolio has done FUCK ALL (Sorry Sean) since I started it in 2017!!!! I have actually lost R 20 000 of my contributions!!! I am so upset! 

Where I have gone wrong and what the FUCK happened????!!!

Meanwhile, back at the ranch, my demo portfolio on Easy Equities has made a profit of R5000... There are not enough exclamation marks and expletives in this email to describe how I feel right now. 

Thank you again for all the help. The two of you are doing the Lord's work, literally.  

Dirk

How can I determine how safe my investment is with respect to the investment issuer/provider/platform?

Many investments are for the longer term. What guarantee can an investor have that the investment provider will still be around in the future? There seems to be an increasing number of issuers, platforms and providers. How can I determine the risk associated with them?

What is the situation in the case where I buy an UT or ETF via a platform (e.g. AG/ABSAStockbrokers/EasyEquities/etc/etc/etc) that is issued by another issuer, for example, AG/Satrix/Sygnia?

Rudzani

Given that cash is no longer king, what is the implication for people like me who have significant equity in our bonds? Should we looking to invest it elsewhere in the meantime? The bond has served as a mechanism to reduce interest rate expense, bond term and easily accessible large sums of savings. 

I have ETFs and max out my TFSAs each year. I sadly hold some unit trusts but I got those before I knew about ETFs and have just left them. What are some strategies with the cash currently sitting in the bond? Do I just leave it?

Christiaan is intrigued by the new ESG ETFs from Satrix, but he’s not convinced that the money will follow the ethics. He wants to know if we have any strong opinions about it.

Brent

I am investing in ETFs for the long haul. I’m maxing out tax free first, but I’m referring to non-tax free and non RA investments. 

Say I buy shares monthly for the next 30 years and then I want to sell some, how is tax worked out on that? I will have been buying shares at different prices over time and now I’m selling them at whatever the price is at the time of sale. Will SARS tell me how much tax I should pay? Will Easy Equities? If I bought shares in Ashburton 1200 for R50 in 2020, then R300 ten years later, then R1000 another few years after that. If I sell them for R1200 the tax on the first shares I bought would be huge, but not so much on the last shares I bought.

Sarel

I follow the one ETF strategy, buying the world, bought Asburton 1200 and MSCI world.

I have resources to add some spice to the mix. Any opinions regarding Sygnia ISO and 4th IR.

Suzanne is wondering whether she should continue investing in ETFs once she’s maxed out her R500,000 tax-free allowance?

Guy

I invest using EasyEquities and focus on ETFs primarily (I’ve been listening to your guidance).

My main investments were Satrix Nasdaq, Emerging Markets and recently the Ashburton 1200 (you mention it so often I couldn’t ignore).

I invest in shares through my USD account on EE but was wondering if it would be best to move the ZAR to USD and buy the MSCI World ETF from iShares / Blackrock.

Jason

My question is regarding index fund platform offerings in SA. As you know, this would be different to ETFs - not trading live on the exchange - but trading like unit trusts that have updated NAV daily. The Vanguard Index funds are the prime example, having the same constituents as the ETFs but not trading live.

This allows one to purchase these passive instruments on auto instruction, without worrying about losing out a spread due to the product not being live on an exchange, like an ETF would. 

I have an account with EE and the recurring investment option often sees this spread resulting in some low volume ETFs being bought at a premium, which puts me off and spoils the opportunity of letting my portfolio function truly passively.

Anyway, I hope you guys can help with suggestions or at least expand on the conversation about the recurring auto-invest instructions getting spreads horribly wrong from time to time.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

IM

I have an Old Mutual Endowment policy that matures in November 2020.. I also have a lump sum in a TymeBank account in various GoalSaves, which I don't need to use any time soon. I have another lump sum in an African Bank account. 

I'm not sure whether I should pool all the money and put it into a fixed deposit account with African Bank for 5 years (the interest rate is very attractive at 10.01% annual interest payout) and have the interest payout annually, so that it doesn't go over the R23,800 tax exemption.

Or should I take the money and invest it into ETFs, split 50/50 into local and international. With the idea of investing for dividends and growth. I know that I won't be sheltered from taxes if I do this.

I was thinking of splitting it between the following ETFs (I use the same ETFs for my TFSA):

• Coreshares Preftrax
• Coreshares DivTrax
• Satrix Divi
• Coreshares Top 50
• Coreshares Property Income
• Coreshares Global DivTrax
• 1nvest Global REIT
• Satrix MCSI World
• Satrix S&P500
• Sygnia 4IR

If I decide to do the fixed deposit, then I was thinking of using the interest payout each year and invest it in ETFs (and be subjected to taxes).

My wife doesn't know anything about RA/TFSA tax benefits or investing, and has absolutely no interest in using her TFSA. I even helped create and set up one for her on Easy Equities. I could use the fixed deposit interest payout and then fund her TFSA each year and then top it up to max it out as well. However, the disadvantage is that on death, then the TFSA will form part of her estate.

And then lastly, I could also put it into my RA, which I currently have with Sygnia (Sygnia Skeleton Balanced 70). I won't benefit from a tax return, but will possibly benefit from CGT, DWT and tax on interest earned.

I'm finding it difficult to make a decision on what would be most beneficial. Any suggestions on what I could do with this lump sum?

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Ash

I switched the Sygnia MSCI USA to their new Health Innovation fund. This is an active fund (with performance fees 😱) that uses the MSCI World Health index as a benchmark and applies an ESG filter. 

My reasoning was that new developments in health care (including a COVID-19 vaccine) are likely going to play an outsized role in the world economy and I wanted a piece of that action. 

Unfortunately, there are no local ETFs which track any health-related indices, so this seemed the only available option for someone who wanted global exposure to this sector. I’ve attached the factsheet and I’d be interested to know your and Simon’s thoughts on this fund.

Guillym thinks he knows why Anne’s Liberty fees are 12% of her monthly contribution. 

This is probably because these sort of products also can give one cover for illness and disability. Not that they not screwing you over, they probably are so fuck em, just this may explain away a bit of why its to high. 

Stephen

Give Edwin a Bells!

I have invested in some Thematic US ETFs and was worried about overlaps as I have ARKK (Ark Innovation (Active ETF)) and BOTZ (Global X Robotics and Artificial Intelligence). The comparison highlighted no overlaps whereas I was expecting a few. I should have done the due diligence via vlookups etc but the anchor equity for ARKK is Tesla whereas BOTZ anchor equity is NVidia. I like both equities and I also like the fact that both these funds consist of between 30 and 50 equities so are not over diversified. My 3rd ETF is iShares Global Clean Energy.

Tania

You guys often discuss the Ashburton 1200 ETF.  I am considering cashing in my young kids’ Unit Trusts and rather investing it here.  You once mentioned the Ashburton Global 1200 isn’t like a ‘normal’ feeder fund and that one actually owns the underlying shares.

Is this still the case and it seems to have read somewhere that this might have changed recently? I would prefer to own the underlying shares as this as it feels ‘safer’ that the investment is then not under SA jurisdiction (even though it is Rand denominated.)

I have called Ashburton but they couldn’t help me and said someone from The First Rand Group would fall me back and no one has...

Adam

https://theirrelevantinvestor.com/2020/09/25/how-much-money-should-you-have-saved-for-retirement/

By 30 you should have saved 1x your salary - by 40 it's 3x! Scary...

Anton

How do you choose a living annuity once you get to the stage where you must go on pension?

I would prefer low cost/high performance Living annuities.

I will not draw more than the 4% rule.

I think having 3 years of money in the cash/money market and bonds. (Low risk)

3 to 5 years money in combination with bonds and equity ETFs. (Medium risk).

And the rest of the money in offshore ETFs (High risk).

I would like to structure and manage my own living annuity in one of the companies.

I think you can do it in Alan Grey but I am not sure if they cater for ETFs and it seems they are also more expensive. 

It seems that Outvest has no living annuities.

etfSa and 10X have living annuities, but it dont seem like you have the option for only offshore.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

Suzanne

After finding your podcast during hard lockdown, I have been binge listening …..and can honestly say: You have changed my life! Thank you! I have kicked Sanlam and their 5.4% TIC under the arse, and moved my Retirement Annuity to OUTvest. 

The buggers charged me a R30,000 exit fee; but thanks to OUTvest’s amazing product – within 5 months I made up the loss; ½ coming from my contributions, and ½ from real returns!

Following Nerina Visser’s fantastic presentation, I am also spreadsheeting everything, but have run into a bit of a snag and hope you can help.

As a medical professional, I hold a PPS Policy which includes a sickness- and disability benefit, as well as life cover.

Thanks to Stealthy Wealth, I now know that ‘PPS is a mutual society, and doesn't operate like a normal company. They distribute any profit they make back to the policyholders’.

These profits are linked to the above policy, and deposited annually into my PPS Profit Share Account. Annually, PPS provides me with a current Rand value, for the value of my PPS Profit Share Account – and I am happy to say it has been growing steadily.

On my policy statement it further states that ‘These accounts do not vest until the policy holder reaches 60 years;….and on this date the Profit Share Account can be taken TAX FREE as a cash lump sum’.

Can I safely count this Rand value, and the projected growth, towards my retirement planning? And if so, any suggestions on what would be the best (tax efficient) way to do it?

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Brett

If you take out a life policy of a R1 000 000 and nominate a beneficiary.

-Then SARS assesses you and says you owe them R800 000.

-You don't pay the debt due to SARS.

-Can SARS nominate the Insurance Agency as a 3rd party in terms of the Tax Administration Act to collect the outstanding debt from the Insurance provider?

-In other words whose money is it/The beneficiary or the policyholder.

-I have looked into this a bit and it seems that creditors cannot access life policies which would indicate it belongs to the beneficiary and not the policyholder.

Kobus

I have offshore funds in a Bank account earning nothing at the moment.

I am considering  investing this in the Sanlam Glacier Global Life plan and will do this without a FA to save on costs.

What other reputable companies in SA offer this service where you can invest directly without the help of an intermediary?

Rudolph

I have a decision to make that I am a little confused about. I am wondering about the order that I should give preference to. I am currently first trying to max out my RA for the Tax benefit, but keeping myself from accessing the funds till I am 65. Then I try to max out my TFSA and Finally I allocate the remainder of my extra money to my house bond to pay it off quicker. I am not sure if this is the best order to give preference to.

Ken

We used to contribute to Little Eden and St Bernhards Hospice as part of our monthly tithe. But with our aging parents, and their lack of retirement savings, we are anticipating needing to help them out in the years to come. So we are diverting our tithe savings into a Allan Gray money market account (lowest fees on the market from what I can tell). But I often have a pang of regret when I think that we are no longer supporting these companies that are working so hard to help others. I wonder. if by no longer supporting them, we have resulted in them having to turn somebody away.

My idea is a Charity "ETF". like the "top 40" of non profit worthy (researched and vetted) organisations that are helping others. The Charity "ETF" fact sheet will look a little bit different, with links to all of the top 40 organisations websites and a brief description of what they do. I was daydreaming about it popping up as an option when you are submitting a trade on Easy Equities (like the R2 KFC thing). There would be a management fee for whoever was running the "ETF" I suppose, but ideally all of the contributions go directly to the top 40 organisations. 

The main thought behind having the Charity "ETF" is that it may seem silly wanting to send, a once off, R100 to one of these organisations. And even sillier to try and split that R100 up into smaller amounts to spread the contribution to multiple companies. But that is what an ETF does best! take a little bit of everybodies money, combines it into one big pot and distributes it to the top 40 organisations.

What would really be nice is if Easy Equities could provide you with a section 18A receipt at the end of the financial year as part of all the other tax certificates they provide.

Greta

Having recently been paid a lump sum (divorce agreement), and needing to live off the yield of my investments for the rest of my life, I have educated myself on personal wealth. I have a pretty sound understanding of my options and how I would like to invest - again based on sound investing principles that you and Simon live by.

My question now is a completely practical one: I have the investment pots - one for growth, one for emergencies, one for income. But how do I give myself a monthly income drawdown (I am not a retiree or of retiree age - still 13 years to go). 

What investment vehicles are my options to hold my three years of expenses in from which I will draw my monthly income - is it a bank account? Or is there some other investment vehicle I can use to invest my 3-year-expenses money in and get a monthly income drawdown from? 

Robin

I'm interested to understand how Bonds work as an investment vehicle. 

Can you and Simon dive into when and why one should invest in bonds? Should they be SA or Int. Bonds, and which Bonds should one consider? 

In the next month, I will have a maturing fixed investment, where I was getting a reasonable 7.58% compounded return. I want to re-invest these funds. However, with the decline in interest rates this year the bank will now only provide 4% compounded return, which doesn't help my cause at all. 

I have Tax Free savings in place, I have a Living Annuity that I recently moved from an RA as I can allocate the full investment to offshore equities rather than on 30% as per Reg 28, where the 2.5% compulsory payout of which I re-allocate to my TFS. 

I have a diversified SA ETF portfolio (SYGUK; STXNDQ, STXCHN, GLODIV, ETFPLD, ETFGRE, ETFIT, CSPROP, CSP500, STXEMG, STXRES, STXWDM, SYG4IR SYGEU, all in equal allocations) which I am building on (waiting for lower prices to allocate more funds). I also have an offshore Investment portfolio that I actively manage in both Offshore Equities and ETFs.

 My goal is to increase growth over the next three years, therefore I have taken an active investment approach. (I am 57 years old and I live abroad, therefore having both an SA and Overseas Investment Portfolios serves me well)

Any pearls of wisdom where I can invest the funds that will be freed up next month? Taking all of the above into consideration.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

Willem 

I have an endowment in my portfolio which was a five year investment which started in July 2003 with the last payment in July 2007 which matured July 2008. 

Tax was deducted on all these investments for this endowment at ACSIS/OLD MUTUAL as per quarterly reports, as well as capital gains tax.

When inquiring at Old Mutual recently, they presented me with a figure for CGT if the investment is drawn upon. The investment was 4 payments of R30,000 and the the last one R36,000. The value as at February 2020 was R572,089.

Would you be kind enough to let me know how else can I get this investment to work for me in the light of being able to access this investment like a conventional discretionary investment without tax complications. I have a discretionary investment, as well as a living annuity in the same portfolio.

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Veronica

You guys seem to be big fans of ETFs but when I looked into buying one they all recommend an investment period of at least 5 years or more (i.e. they're high-risk and therefore long term investments). 

My husband and I are looking to potentially emigrate in about 4-5 years from now. In light of that, where would the best place be for us to invest our savings? I currently have a money market emergency fund and am putting away a bit into an Allan Gray Balanced Fund (both recommended by a financial advisor, although the more I listen to your podcast the more I'm thinking to start handling investments on my own ☺). 

ETFs sound like the best place to invest but are suited for way long term, in which case we might be out of the country before the product matures. Is the solution then to keep the savings in something like the money market? Is it still worth opening a tax-free savings account for 5 years?

James is wondering about Zambezi preference shares.

Can you please discuss the place of this product in a portfolio for someone that is on pension.

Will it help with cash flow during pension?

Pieter 

The thing people miss about the 4% rule is that the study didn’t work on the principle that your money should last forever.

Success was measured on the fact that you would have more than $0 after 30 years at a 50:50 equity:bond allocation. That might also mean you have $1 left for year 31 which accounts for the 95% success rate. Another caveat is the study was run during a high interest period in America. 

Also just on a correction how the 4% rule worked in the study. You withdraw 4% in year one. After that, you withdraw what you did the year before plus inflation, not 4% of your asset base.

Josh

I plan to emigrate to the UK at the end of the year. 

I have been maxing out my TFSA and contributing to a Provident fund. When I maxed out my TFSA for this year, I started setting aside that cash monthly that was going to the TFSA, and reduced the amount going into my Provident fund monthly with a view of investing it when I got to the UK (after having converted it to pounds obviously).

The UK equivalent of a TFSA allows contributions of a max of £20,000 per year (with single shares allowed). I plan to liquidate my TFSA when I move, cash out my Provident fund when I resign (and take the tax hit), and chuck all of that cash into a stocks and shares ISA, probably a Vanguard all world ETF. Also, I'll be using a broker called Trading 212 if anyone is interested.

Do you think this is a silly idea? Cashing out of a TFSA and Provident fund is a big decision.

And just something separate: I wish I hadn't bought a property now that I'm immigrating. I just want to sell the stupid place but am struggling. Wish I just rented a place. 

Conrad 

I’ve requested  information on the OUTvest investment options for a preservation fund. I am not happy with these just by looking at the top 10 holdings in most of these options. I agree with your view on simplified broad-based ETF investments and wondered if these are the only options that Outvest offers or if I can structure a more simplified ETF based combination that will be Regulation 28 compliant.

Sean

I WAS one of those people who has religiously put monthly money away with a broker who was smiling all the way to the bank from the tender age of 15. I am now 29. In the past three years I have been paying a lot more attention to where my money goes.

Thanks to you guys, I had that awkward conversation with said broker and have taken all of my funds away from them and reinvested in a much cheaper, passive investment group.

Although this new firm is cheaper, it’s not as cheap as Easy Equities, so I have been splitting my monthly contributions for the past year with EE. Things have been going so well that I recently started looking into the TFSA on the EE platform. I have been able to max it out for the last three years. If I had known about it earlier it would have been longer but it turns out they aren’t very profitable for high rolling fund managers.

With this being said, I did some deeper research on EasyEquities, and I was shocked!

I have had a great experience with them so far, however I have not tried to withdraw any of my money yet. 

This seems to be a huge problem on the platform, if you have a look at Hello Peter. 

It’s a scary prospect to have your hard-earned money on such a platform that “doesn’t pay out withdrawals and doesn’t answer any emails or phone calls” the dreaded word “scam” is even mentioned by one of the disgruntled users.

I know Purple Group is a legitimate, listed company that has legal obligations in place but other people’s VERY poor experiences are something I cannot look past. It has been an amazing platform for me so far, but there is a big BUT in the back of my mind now. 

Is there anything from your side that could put an innocent investor's mind at ease?

With Simon celebrating his birthday on the beach, this week’s episode is a tax bonanza. De Wet de Villiers, King of the Tax Elves and Great Guy finally shares with all of you what he shares with me for free every Monday. I love talking about tax, which is why this week’s episode is much longer than usual, and much shorter than it could have been.

He gives us a useful checklist of things all of us should do when we submit our tax returns, among them: 

• If you earn less than R500,000 per year, you don’t need to file a tax return.
• You can ask your HR department to factor in your medical aid and retirement contributions, even if you signed up for those services privately. 
• You should check your details annually, including address, SMS number, email and bank details.
• Keep a record and declare all income streams available, including directorships and side hustles.
• Make sure all your investments and bank accounts are included.
• Provisional taxpayers should keep track of the following expenses:
  • Expenses: Rental property magazine, conferences
  • Side-hustle: Phone calls, data costs, 
  • Business travel: fuel, vehicle expenses
  • Home office: Fibre at home, cleaning costs
• Don’t accept the auto-assessment. It doesn’t work yet.
• Check your prior-year tax return to look for things you may have forgotten. This is especially true if your circumstances haven’t changed much.
• Get a statement of account from SARS from e-filing.
• Don’t do everything in one go - do a tax recon every quarter so it’s not so overwhelming.

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Win of the week: Jess

Let me start by saying that the Fat Wallet Show and Just One Lap have completely revolutionised the way I think about my personal finances. In fact, I used to avoid thinking about it at all because I found it so overwhelming and confusing. But since listening to your show I actually understand words like "equities" and "diversification" and "All Share Index". I feel like a brand new person, so thank you for that.

I was working on cruise ships and earning USD but thanks to Covid I had to come home. I am currently working in the public sector but might go back on board for another contract. 

Since listening to your podcast I have corrected some financial errors that the ignorant past-Jess made. Luckily, keeping expenses low and saving money comes naturally to me so I was doing that anyway - but my mistake was saving a lot of cash and being afraid of equities. I have an RA to which I am currently contributing 10% of my income, but other than that all my savings are in cash. Thanks to you, I am now moving my TFSA (currently at max) from cash to ETFs (which I did via EasyEquities much to my financial advisor's annoyance - now she won't reap the benefits of my investment). I also have a home loan on a house that I am renting out. The rest of my savings is in cash (32 day account for emergencies, standard savings account, extra payments into my bond and a USD global account) - I know, really silly! 

I want to move more cash to equities but I have a few questions and would like to hear what you think?

1. Should I contribute even more to my RA (which has high fees and a financial advisor fee) first to get the tax benefits or should I rather buy a discretionary investment with lower fees?
2. I stopped paying extra into my bond because of the low interest rates at the moment (in order to keep my rental income profits low and reduce my income tax). Is this wise? Or should I rather continue to put extra into the bond and just pay the income tax but get rid of the debt quicker?
3. Since I have USD I want to open an EasyEquities USD account too. For someone who has no idea where she might live one day, what is a good balance between local and offshore investments? And this might be a stupid one, but what is the difference between investing in global ETFs in ZAR vs buying ETFs via the USD account? 

Gerard

Can you possibly spend a bit of time on Physical Offshore investment accounts and how these things should be declared to SARS.

I have an EasyEquities USD account, and they withhold 15% of  Div tax, so do I get a credit for that or should I apply for a credit? 

You might not be thinking about where your family will be in 2120, but Greg is. This week he shares a mad plan to make a 100-year investment. 

Greg

I thought about starting an investment with a 100- year time horizon.

A lot can happen in 100 years. Maybe we don't use money anymore. Maybe earth explodes. Who knows? But if things still kind of resemble the way they are now and there's still a stock market then once off R10,000 invested in equities could be worth around R30m in 100 years (in today's money). So I think it's worth taking the risk.

I'd have to get my offspring onboard when it came to that point and then their offspring, to keep it invested and change the investment vehicle if and when needed. Worst-case scenario, a greedy grandchild decides to cash it all in and blow it on bubbles and a house with a sea view, which is also not a bad outcome. 

I started with R10,000 in my EasyEquities USD account and bought the Vanguard S&P500.

Ultimate goal - I'm not sure yet, but hopefully it would get used wisely, to help supplement income for a few families, not get depleted and continue to grow.

Just curious if you have thought about doing this?

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Win of the week: Nokuthula and 

Bea

Thank you very much for your thorough answers to my questions. Kristia, I love how you answer questions from the perspective of all - you do not assume that everyone knows all the financial keywords. I appreciate your guidance and the presence of  JOL in our lives. Being new to all of this, both yourself and Simon's ongoing presence is a comfort to me and so many others - I am sure.

Simon’s answer to my furniture and storage question was classic and was taken to heart. ' Burn it!' This got my attention since family have said things along the same lines. Both of you also seem  to understand life situations, in my case the hold that belongings have and how they really own you. The grim reality is that, like Simon says, these things that we attached so much worth to...end being worth so little - in monetary terms...years later.

Ina

My brother lives in SA and I’m in the UK. He advised me to listen to some of your podcasts - I think they are truly brilliant! 

Could you recommend anything similar in the UK that I can listen to in regards to advise as I really need some tips on the UK market?

Get in touch with Garth McKenzie.

Peter

I listened to your podcast which I enjoyed a lot.

Someone asked what to do with a large amount of money- a windfall, obviously keeping tax efficiency in mind. I noticed that buying gold and specifically Krugerrands was not mentioned.

Could you explain why not especially with the current Bull phase of gold.

Sandy

I have a life insurance policy that has age-rated premiums. Looking ahead even just 10 years, these monthly premiums become shocking.  

My policy is tied to a dread disease benefit, so maybe that's why. But as I get older, that's when I'll need this benefit, right? Especially with a family history of breast cancer. But how will I afford it? I don't want to pay all this money in and then have to cancel my policy. 

Are there alternatives to age-rated premiums, and if so what are they? Could you be insured for a specific amount that doesn't grow each year. But then, what about inflation? Urgh! 

Please help. I'm so confused! 

Mike

A few years before I retired I became aware that I should take responsibility to inform myself about financial issues. At work in a secure enjoyable technical environment I did not have any exposure to financial issues. 

I was unprepared to manage the expected pending inadequate pension which I accepted with-out seeking informed advice from anyone. During that time I was introduced to Red Hot Penny shares material. 

I was also fortunate enough to have a small amount of capital to open an equities broker account with Imara. This is now Momentum Securities who charge me R40 per month even though I do not seek their advice and make all my own trading decisions. Over the years I have gained an interest in investing as basically a buy and hold investor. However I do now have a share portfolio despite my largely ignorant independent cautious DIY approach.

I am a client of Standard Bank dating back to 1990, but I believe the time has come to move my broking account. I have made a feeble attempt to do this before but have failed to complete the exercise. 

I find my isolation as a pensioner in the new, to me, digital environment and lack of informed personal interaction is daunting for me such that I have not achieved the move.

I know that with change I would have to work on an unfamiliar platform. Before I take the decision to commit to Standard Bank do you know if I am able to use a Demo trading account? Please could I speak to you about who to contact to get the website details and if there is a tutorial I can use to familiarise myself with the platform.

Ben

Before she even gets going she gets penalised with R20k, not to mention everything else that looks terrible with this option. 

Needless to say I put this on hold - I'm careful to meddle but couldn't let this one fly. I will recommend as an alternative a similar split in equity, bonds and cash (the proposed split is appropriate for this portion of her money), but the first two in ETFs.

Here are my two questions:

1. The equity ETF portion is easy, but is there also a bond equivalent of the "one ETF to rule them all" for more moderate risk investments that I can consider for the bonds portion in this case? (Bonds in your ETF portfolio.)
2. The product is being sold to her with the benefit that it won't form part of her estate and will be easily transferable and keep going if anything happens. Is there any merit to this? What will happen with her Ashburton 1200 and Bond ETF I buy if something goes wrong that could be avoided with the Glacier option? My first thought is to call BS on this too. 

Adam

Is it possible to use the R40 000 CGT allowance each year? By selling shares for a profit just before the tax year end at  a profit and then buying them back in the next tax year, would you then recognise the purchase of shares at the new purchase price?  Is this a way to minimise future tax costs since you now recognise future profits off of this higher value?

I've seen this being referred to as bed and breakfasting but I'm not sure what regulation is applicable in South Africa and how one would go about it.

Marco

I have a comment or question in regards to your use of acquiring a foreign currency "hedge" against the rand value declining over time. The problem (as I understand from reading around) is that there is a yearly tax "drag" on this method because any unrealised appreciation in foreign currency is taxed as income, as interpreted here: https://www.rsm.global/southafrica/news/tax-implications-foreign-exchange-differences .  

Now, I'm unsure if this is entirely applicable to a "buy and hold", as I have used this method in order to do my own taxes as I do some day trading using USD and not ZAR. Perhaps this doesn't apply if you can show you were buying foreign currency as a "capital" gain if you hold onto it for longer than 3 years?

We spend a lot of time thinking about building an asset base and which assets we should be buying. 

As you approach financial independence, getting rid of assets starts to present problems. Which assets should you get rid of first? How do you manage your capital gains liability? How many of your assets should you get rid of and when? How can you use a capital loss to offset your capital gains liability?

This week we consider the challenges in living off your investments. If you’ve spent your whole life accumulating assets, getting rid of them is bound to feel like sacrilege.

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Win of the week: Gert

Was listening to your show about the confusing jargon, synonyms and abbreviations/acronyms we use, especially the term “coupon” used in describing the return on a bond. 

I seem to remember reading about the etymology years ago and looked it up on Investopedia, but found a better explanation on Wikipedia:

The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon").[2]

The certificate often also contained a document called a talon, which (when the original block of coupons had been used up) could be detached and presented in exchange for a block of further coupons.[3]

Hannes

For equity investments, I've read that it's important that there is a "CSDP account" for each user of the platform. central securities depository participant 

They note:

"First World Trader Nominees holds a Securities Account with an authorised central securities depository participant (CSDP) admitted to Strate, in the name of FWT Nominees into which Clients’ Securities are deposited or stand to be credited."

So it sounds like some rights are seeded to EE here. Should I be concerned?

Luan

I have an RA with work which is invested in Momentum Focus 7 fund of funds which I believe has a TIC of 2.08%. Work contribute 5% and I match that – I have come to the realisation that while they will continue to contribute into that, I can choose not to and rather put my portion into something that works better for me.

I do have an RA with etfSA which I have been contributing to and wondered what your thoughts were on topping up into this or whether I should rather put it into ASHGEQ type investment?

I am also looking to help my sister start her own additional RA and wondered what your thoughts were on the etfSA RA or Sygnia Skeleton 70 fund? (will be starting fresh so not beneficial to do OUTvest)

My sister and I will likely not retire in SA and I wondered what advice you would offer on how to safeguard our future, specifically with the value of the rand (in 15-20 years) when our RA’s begin paying and we are in another country? Are we being silly contributing into personal RA’s now for the tax benefits and should we rather be buying investment ETFs like ASHGEQ it STXWDM with those monthly contributions (+-R5000)?

We do not have offshore investment accounts (do have a UK bank account) and am assuming for now the best route is through EasyEquities USD account until we have a more substantial amount – would you agree?

I want to make sure that we are putting our money to work in the right places and can then let that compounding go wild.

I find it odd that so many people fear the stock market and then get lured into financial scams. Inspired by James, who is trying to keep his clan from being conned, we help you figure out when something is just not right. 

Here are some tips to get you going:

• Find out if the company or product is registered with the Financial Services Conduct Authority (FSCA). This is not foolproof, but it takes a diligent kind of con artist to steal money in this way. It does filter out a lot of the scum.
• Run the opportunity through the Just One Lap five concepts filter:
  • At the end of this experience, will you own an asset? 
  • Will you earn income on that asset and will that income compound? 
  • Will the returns beat inflation? 
  • Compared to what your index of choice did over the same investment period, do the returns seem too good to be true?
• The promised returns are a huge red flag. If you’re new to financial matters, it’s hard to know what’s a lot and what’s a little. As a rule of thumb, when an “investment opportunity” offers monthly returns, be very suspicious. It’s industry practice to quote returns for a year. 
• Google not just the company or product (that’s usually fairly easy to control), but also every individual’s name associated with the product. Scammers love getting away with scams, so they tend to circle back.
• If you find media articles about the legitimacy of the product and the person you’re dealing with tells you they’re taking legal action against the media house, be very suspicious. This is an old trick to put potential investors at ease. Remember, you don’t have to be in the right to bring legal action.

We also spend a little time on helping you think about alternative, unlisted investments and the place they should have in your portfolio.

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James

How do you know you are investing with a fraud? More importantly, how do you convince your friends or family that they are going to get fucked?

A friend of mine invited me to listen to a guy that is willing to invest your money through his company.  The returns are absolutely amazing!  77.64% for the year in 2017! 

To the untrained ear, this guy sounds lekker.  He explained that they move the money to America and use a computer program (that his son developed) to predict the market.  The level of risk is then adjusted by the amount of gold (held at the bank of England) in a portfolio. They do all of this at a fee of 1%. 

I asked him a few questions about custodian accounts, insurance, brokerage, total investment cost, TAX and all kinds of clever shit you and Simon spoke about on the show.  I could see this guy has no idea what I am talking about and then he referred to an ETF as an "Electronic Traded Fund" then I knew this is a fucking keeper!  He told me that he is not here to convince or force anyone to invest with him. But there he was, trying to convince people to invest with him.  

I am convinced this guy is a fraud, but my friends are not and eating up every word this guy is saying.  My friends have family invested with him and have seen returns so now they are true believers.

What do I do?

Win of the week: Martie

I enjoy your writing and podcasts. Think the fact that you do not come with a background in finances makes it easier for the ordinary person to relate to you. And the fact that you have learned so much about finances gives us hope that we can do it too. Definitely an inspiration. 

You and Simon are a mean team and I am really glad I discovered you. 

Ani

I have an option to take a pension backed loan. Each month, the payment will be deducted from my salary. Should I default, they will take the money from my pension. 

The interest rate for the loan is prime minus 1%, and there are no registration costs (which would be a minimum of R35000 according to the bank should I apply for a 2nd bond).

We are expecting the renovations to cost between R300,000 and R400,000, worst case scenario. We are also planning to move overseas within 5 years.

We don't want to overcapitalise. Houses similar to ours in our area are in the market for between R2.2 and R2.4 million. We are trying to ensure our house is the most attractive house on the block. If we run into financial trouble, and we need to rent out the house, we shouldn't have a problem finding tenants. If we want to sell, we offer a better house for a similar price to the "outydse" one down the road. If we don't move out of the country, we will stay in this house. 

Is the pension-backed loan worth it, or should we take the R35,000 out of our emergency/insurance money(for registration costs) and rather take out a second bond? The Ts and C's indicate that should you leave the retirement fund, you can settle it in cash, or they take it from your pension (thinking about tax implications etc, that's the last thing I want to do).

Or should we live with shitty floors and cupboards (and increased spending on sinus meds along with cracked heels) until next year March when we have more certainty on whether there will be salary cuts etc? 

Ndida

How do I use this cost per use on a running shoe bought for R3,000. Do I use the 12 months I have used the shoe or the kilometers I have done? 

I am under debt review working my way to be debt free. I entered debt review in April 2019. In 2016 I bought timeshares with LPA under the impression that I was investing in property. The contract is for seven years until I have paid them in full, plus the annual management fees which are quite steep. I still have five more years to pay. Since I am occupying the place only once per year I am a loser ito cost per use. I am not sure how to untangle myself from this. I am paying a monthly installment of R1,700 and each year there is a seven percent increase.

Wesley

I have a bog standard TFSA with Standard bank that I've been contributing to for 3 years now. I only recently discovered your site and the opportunity to take this long-term investment and use it to buy ETFs to give me a better interest rate than the minor 3.5% I'm getting from Standard Bank.

I want to make this money work harder for me and I don't plan on using it for at least 10 years, probably longer.

Is it possible to transfer this TFSA from SB to a place like EasyEquities and start using it to buy ETFs? Is there any tutorial/how to on this process outlining what I need to do at the bank as well as with EE?

Chris 

I would like to offer the staff some resources to help them with their personal finances, I can offer some help in my personal capacity from what I’ve learnt from you guys, but can you give some resources/tips on how to deal with reduced income?

The school has applied to TERS from day 1, but those F%^&* have paid us diddly squat, and won’t tell us why…

Much of what makes investing confusing is that we use different terms to talk about the same thing. This is so frustrating for beginners. This week, we tackle jargon head-on. Not only do we tell you which terms are used interchangeably, but also what they mean. Here are the terms we discussed: 

• Stocks, equities, shares.
• Stock market vs stock exchange
• Coupons and interest.
• Debt instruments, preference shares and bonds.
• Index-tracking products, index funds, ETFs and UTs, collective investment schemes, hedge funds
• Real return, future value.
• Retirement, financial independence.
• Brokers, investment platforms.
• Property, fixed property, REITs
• Tax-free savings, TFSA, tax-free investments.
• Tax on income, tax on interest.
• Listed, on the stock market
• MDD, fact sheet

And then some stuff that’s used interchangeably (sometimes by us) that’s not.

• Marginal tax vs effective tax
• Pension, provident, RA, retirement fund

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André 

My initial plan was to have more off-shore equity, of which I put mostly into a global equity ETF. I chose the Satrix MSCI world ETF purely due to its lower cost. 

I was wondering why you chose the Ashburton 1200 global ETF for this purpose. However, now that I got my first dividends from my property ETFs, I noticed the meaning of distributions was dividends, and then realized that the Ashburton ETF pays dividends and the Satrix ETF doesn't. 

In my mind, I'm thinking that if the dividends of the Ashburton cover the difference in costs between the 2 ETFs, then the Ashburton ETF will outperform Satrix MSCI world in total returns  to me. Is this due to a difference in the type of ETF (feeder ETFs) that the one pays dividends or not, or is that simply a choice of the ETF creator to pass on dividends or not?

My question is if you could elaborate a bit in your thoughts comparing the Satrix MSCI world ETF vs the Ashburton 1200 global ETF regarding the dividends.

Win of the week: Leonora

I have it that Reg 28 doesn’t apply to Living Annuities. I have mine with Momentum in Coreshares S&P500 and a small percentage in their money market. 

(After asking, my EAC is now down to 0.77%.  Still too bloody much.  I take a minimum 2.5% drawdown. The fee was +/- R2000 per month, now R1700!  For what?)

Zanele

I wanted to open a tax free savings account but a friend told me that after 15 years I or my Son who is 5 years old will not be able to contribute because a person is only given 15 years to utilise the tax free account. I have researched this and I got no information  on the time limit, please assist if this is true or not.

I am currently investing anything from R200 to R500 a month which is what I can afford.

When you’ve gotten your debt and spending under control, it can be comforting to hold on to your free cash for a while. Taking the leap from that safe pile of money to the Big Bad Market is not easy.

However, as we’ve discussed before, cash is not a risk-free investment. The longer you sit on a lump sum of cash, the more risky it becomes. This is because of inflation. The effects of inflation are difficult to internalise because the rand value of your money stays the same.

Let’s say you put R100,000 in a low interest cash account today. The interest you earn is enough to cover the annual cost of the account, but nothing more. At an inflation rate of 5.5%, in 10 years you’d only be able to buy what R58,543 can buy you today. The rand amount is still R100,000 so it seems like you haven’t lost anything, but you can afford half of what R100,000 can buy you today. In 20 years your bank statement would still reflect R100,000, but you’d be able to buy what R34,272 can buy today. As you can see, the inflation risk increases every year.

This week we help three listeners figure out how to put their cash lump sums to use. The checklist we managed to come up with for a cash lump sum is as follows:

• Fund your tax-free investment vehicle:
  • Commonly referred to as tax-free savings accounts or TFSAs, these products should be every South African’s first investment. As an investor you are liable for dividend withholding tax, tax on interest and capital gains tax outside of a tax-free account. As we discuss in this week’s episode, these accounts are not meant for cash savings.
• Don’t speculate unless you can afford to lose the money:
  • While cash makes it easier to capitalise on investment opportunities as they present themselves, cash can also make it easier to hop on a bandwagon that’s not suitable. Don’t invest your cash into a speculative investment (think alternative asset classes, sub-indices or individual companies) unless you can afford to lose that money.
• Lump sum vs average:
  • While the math shows us investing an entire lump sum in one go makes more financial sense in terms of potential future earnings, going into the market one small investment at a time is a legitimate option if you’re scared. If this is your first investment, think of it as a teaching tool initially. Once you feel more confident, you can add the rest.
• Work out the future value:
  • If cash is giving you a feeling of safety, find an online calculator to work out the future value of your lump sum using a 5.5% inflation rate. Now play around with higher or lower inflation rates. Hopefully seeing the value of your investment deplete will be the motivation you need to get going.
• Diversify:
  • If you’re holding on to a large amount of cash, you are not diversified. Make sure to put your money to work.

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Win of the week: Matt:

If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA. My understanding is the first R1m earned will be tax exempt- is that the case?

“Tax residents in South Africa will be taxed on their worldwide income. But that is dependent that they’re still SA tax residents. Offshore salary earned is taken into account. R1.25m ito the latest tax amendments will be exempt from tax in SA.”

Harry

This was mainly due to the fact that I did not know what the best option was, and my new employer only offered a provident fund.. I've been maximizing my tax benefit with my new employer provident fund. I'm also sitting on cash in a savings vehicle with my bank, currently returning around 3-3.5% interest.

I'm living rather small (renting only, no debt of any sort) and have quite a bit of money to invest/save every month.

What would you advise I do with my portfolio? The preservation fund? Should I keep maximising my provident fund contribution? What about my cash savings account? Should I consider taking money out of the country? Investing offshore?

Joe

I know we may have missed the boat both with gold and Tesla, would you suggest we go for an ETF with some gold in them? We don’t mind going moderately aggressive.

Steven

I currently have free cash in my TFSA with ABSA Stockbrokers. Besides the fact that its not earning that much in the way of interest, they also charge a 1% service fee annually, which I believe is based on the value of the funds in the account?

I’m reluctant to invest in the market right now as I feel there’s no value and would prefer to wait for a correction, when it eventually comes?

Although I have no previous experience investing in bonds I am thinking this could be a suitable option at this time.

Looking specifically at the Stanlib Global Government Bond (ETFGGB), it seems to be doing very well so far but is this mainly due to the Rand’s weakness over the past few years as opposed to any other factors?

Considering that this is a reasonably low risk product, is it currently a better option than investing in a regular cash instrument which is offering such low yields at the moment?

According to the fact sheet the time frame for this ETF is 3 years so assuming my investment period was 1 year or less, would you say that this is not going to be suitable?

Santosh

Based on FIRE (my FIRE btw is Fuck It, Retire Early) the rule is to have around 250 - 300x monthly income. So Kris, I know your FIRE number is R7M as you've stated this.

so assume you have the R7M already and are still work and assume is sort of split into Cash, Bonds, Stocks and Property.

If this portfolio yields you a modest 6% PA it amounts to your investments paying you R420,000 PA - Gross.

Now this is gonna have a major impact on the tax you'll pay as there's no way that you can "hide" this from SARS and there's no way your PAYE accounts for this.

You're gonna have to pay SARS either way. I know one of the solutions is to dump it all into an RA but then you are not liquid and you'll pay the tax in the future anyway.

I'm sure the other FIRE guys like Patrick, Stealthy face this.

What's the solution ?

Does on just lap it up & pay the tax comforted in the knowledge that they're paying tax cause they've made money

This tax liability is quite substantial as if you're an average earner, it pushes you 2-3 tax brackets higher and if you're a HNWI, even an increase of 0.2% of your taxable income can add R20000-R50000 to your tax bill for that year.

Leon

For the inflation linked option, the capital balance would increase by the cpi calculated rate at payment dates and interest is fixed at 5% of capital.

The website mentions an index ratio calculated by cpi divided by base ratio or value, do you know where this base value(divisor) is obtained from? It only mentions that the cpi (numerator) is obtained from Stats SA.

The fixed rate on the inflation linked 10 year bond is at an all-time high of 5%? Is this an opportunity to lock in a great rate or are the fixed rate bonds still the better option?

It seems like there is more upside potential on the inflation linked bonds as it is unlikely cpi will remain at current lows over the 10 year period. I may be incorrect but it seems both options offer the roll over or restart option so you could capture any improvement on the fixed rates either way.

Ross

There is an awesome book by Andrew Hallam - "Millionaire expat" that details expat investing (He details options for people all around the world) He also has a blog. Another is Bogle heads investing advice and info based on Singaporean expat investing.

Often the fear of making a mistake keeps us from starting our investment journey. It feels like everything is on the line when we make our first investment, but missteps can be corrected fairly easily. Even the mistake of waiting too long and starting too late can be corrected. This week we think through some of the mistakes new investors fear most and how they can be corrected. Hopefully this episode will give you the courage you need to take the plunge.

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Win of the week: Rory

I started learning about the investing world about two months ago and stumbled upon your website within the first week. 

Most of the things you discussed in your podcast just flew over my head, but it did direct me to the things I had to go read up about. Two months later I realized I am able to follow your podcasts without any problems. I want to thank you both for that. If I didn't stumble upon your website it would have taken me much longer to actually understand the investing world.

I have a friend, he is 25 and about to get married. His plan is to move to New Zealand in the next ten years. I told him he should look at starting to put money away in his TFSA, then the question came up about what happens to that money when he emigrates?

I see EasyEquities opened a properties platform, where you can buy shares in buildings and earn your share of the rent. What are your opinions on this? Do you think it would be a good idea to invest some money there and what would the tax implications be?

Travis

I recently made my first attempt to begin investing using my TFSA. I have been listening to the Fat Wallet show whenever I can. 

I decided to invest in the Satrix NASDAQ 100 and the Satrix S&P 500 hoping to acquire some international exposure. I did not realise the NASDAQ has some S&P 500 companies. Now I am wondering whether I have begun on the wrong note, making a mistake and overinvesting or spreading myself too thin in some of these companies in the indices.

Is there any way that way that I can correct this "imbalance" in my TFSA or should I even bother? Have I made a blunder in choosing both the NASDAQ and S&P 500? 

Ash

Like many of my colleagues, I was hopeless with my finances for most of my working life. I had 2 RAs with my insurance broker that were fee- and penalty-laced products that underperformed my cash savings account. Four years ago, I started a tax-free and a discretionary investment with my bank which were both heavy on fees (2-3%) and did not perform as expected (annualized return of <2%).

A year later, I took a two-year private scholarship, which meant leaving my government job after 10 years and my pension fund (GEPF) paying out. The scholarship only paid about 60% of my usual salary & I would have had a hard time keeping up with my bond repayments, instead of moving the pension payout into a preservation fund or my RA, I used it to settle most of my bond and reduce my monthly payments. Needless to say, this 2 year gap left a big dent in my finances overall as I had no other source of income & relied heavily on my savings.

Earlier this year, when I was looking at investment options for my toddler’s education, I started reading up on personal finance & investing, discovered your blog and podcast, and realized all my missteps along the way.

This set off a series of changes in rapid succession:

I switched banks to a bank with a single, lower fee, and better cash investment options. This meant closing my access bond. With my biggest debts paid off, I cut down aggressively on unnecessary expenses, brought my expense:income ratio to about 40% and focused on saving and investing the balance. I started 2 new money market accounts with the new bank - 1 immediate access for my emergency fund (now have 3x monthly expenses covered), and a 90-day notice account with a higher interest rate (between 6.5-7%).

I transferred both my insurance-based RAs (despite the protests and threats of penalties from my broker) to a low-fee new generation RA (10X) and started a new one with Sygnia (Skeleton Balanced 70). I increased my contributions from 5% to 10% of my income, and plan to increase further to 15%.

I repurchased the poorly performing discretionary investment with my bank and reinvested this in an Allan Gray unit trust (High Equity Fund) - lower fees but still in the range of 1.6%. This was just at the start of the current crash so it has nosedived, but I am planning to hold rather than sell low.

I began investing in a range of ETFs in quick succession: 

a) Satrix (50%): initially Top 40 (12.5%) and MSCI World (12.5%) - later added Emerging Markets (6.25%), NASDAQ 100 (6.25%) and most recently, the new SA Bond ETF (12.5%).

b) Sygnia (25%): 4th Global IR ETF (12.5%) and S&P500 (12.5%) (initially also had MSCI USA but stopped the recurring contributions when I realized the huge overlap with the S&P)

c) CoreShares (25%): S&P Global Property (12.5%) & SA Property Income (12.5%).

I switched my tax-free investment from the ‘multi-managed growth fund of funds’ with my bank to the NewFunds MAPPS Growth ETF (using the same platform), and split my maximum contribution between this ETF (50%) & the Sygnia Skeleton International Equity FoFs (50%) (*factsheets attached).

I would like to know your take on my financial moves and if there was anything I could have done better?

My concerns are:

1. Was it a mistake to close my old bank account just to save on fees, since this was my oldest and most diversified line of credit (home loan + first ever credit card)? Will this damage my credit score, especially when I apply for a new home loan?
2. Am I overexposed to global (especially US) markets in my choice of ETFs & is there too much overlap in the holdings of the global ETFs (MSCI World, S&P500, NASDAQ 100 and the Sygnia International Equity FoFs, not to mention the 30% international equity in my RA’s)?
3. My discretionary investments currently outweigh my RA contributions by about 40% & both RAs still only represent 10% of my income. I wanted to gain more equity and global exposure than a Reg28 product would allow (and have access to the funds if needed before age 55), but is this short-sighted and should I rather aim to maximize my tax deductions? 
4. The listed property ETFs are the worst performing products so far & I understand this reflects the poor performance of property markets in general - would reducing my exposure to this sector be wise at this stage since recovery is very likely to be sluggish given the current crisis? 
5. How do you feel about holding the NewFunds MAPPS Growth ETF in a tax-free investment? This is 70% local equity (SWIX) and also holds a significant proportion in SA bonds or cash (30%). Is this kind of ‘balanced’ ETF not ideal for a tax-free investment (TFI) since we are looking at long-term growth and equity-only would give higher returns? After listening to your podcasts, I understand the Ashburton 1200 to be one of the best choices for a diversified equity-only ETF. I am thinking of transferring my TFI to the ASHGEQ via Easy Equities, however this overlaps quite a bit with the Sygnia Skeleton International Equity FoFs (*fund breakdown attached), including emerging market exposure. Would I be better off consolidating my TFI into one ‘global’ ETF or is there any benefit to splitting between the ASHGEQ and the Sygnia International Equity FoFs (*not sure if this is really a ‘passive’ fund since it seeks to ‘outperform’ the MSCI ACWI)? Should I rather split the TFI between the ASHGEQ and a local equity ETF like the CoreShares Top50 since the SA market is not represented in the ASHGEQ?

How do you and Simon feel about the Ashburton World Government Bond ETF (TER 0.51%), particularly as a part of ‘balanced’ ETF portfolio? I see from their factsheet that their returns have exceeded even the ASHGEQ (>20%), but I understand that this may change with interest rates over time, and may not reflect future performance.

Would the combination below in a TFSA wrapper be the best long-term bet?

1. Ashburton Global 1200 Equity ETF (1/3)
2. Ashburton World Government Bond ETF (1/3)
3. CoreShares S&P SA Top 50 ETF (1/3)
4. I have been looking at the RAs offered by EtfSA & their Wealth Enhancer RA seems quite attractive - it includes more commodities (gold in particular), local mid-cap and Africa ex-SA exposure than my current RA holdings. The fees though stand at 1%, similar to 10X. What are your thoughts on this RA & would you recommend adding this to diversify my RA portfolio? 

Matt 

With many companies transitioning to remote work and deciding to stay that way, it's becoming easier to find a location independent job for a foreign company.

If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA.

My understanding is the first R1m earned will be tax exempt- is that the cae? Am I missing anything and does this seem like a feasible thing to pull off?

Access the ETF comparison tool Edwin shared here: https://www.etfrc.com/funds/overlap.php

Anne

My employer pays into a Liberty Provident Fund on my behalf. For the first time this month I requested my Provident Fund statement. 

I saw, with disbelief, that Liberty is taking 12% of my contribution each month in fees! Given what I have learned about fees from your website and podcasts I am dumbfounded. 

I queried this with Liberty and they said it’s because their fees are based on 0.02% of ‘payroll’ i.e my salary, rather than my contribution. I checked with our company CFO and she said these fees are in keeping with what is charged by other companies and I can’t go to another provider.   

• What do other reputable SA companies charge to administer Provident Funds?
• Why is it so hard (for me, anyway) to find this out?
• Do you know if my company can compel me to stick with Liberty under SA law? Why can’t I leave the company provident fund to go to another provident fund or RA of my choosing? If not, Liberty can just make up a number (as they seem to have done) and charge me what they like and there is nothing I can do about it except leave my job. 

I’ve been avoiding talking about endowment policies, because what even are they? I haven’t come across one in my own investment life. This week, a question from Sandile sent me down the endowment road. I had fun with it. I got the Tax Elves involved. They had fun with it. Fun was had by all.

Endowments are the love child of insurance and investments. They have a five-year lock-in period, a tax rate of 30%, a life assured and a beneficiary. If you are in a higher tax bracket and looking for a long-term investment vehicle, endowments are worth investigating. They can also play a role in estate planning. It pays out directly to the beneficiary, which is great if you are leaving someone behind who is financially dependent on you. As De Wet de Villiers pointed out, the fact that they pay out tax-free doesn’t mean they’re not taxed in the estate. It simply means the estate is liable for the tax, not the beneficiary. 

In addition to teaching me a thing or two about endowments, Sandile’s question could serve as a template if you’re hoping to add new holdings to your portfolio. His clear reasoning and systematic approach to adding this investment is worthy of emulation.

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Win of the week: Pru

I’ve tried to break up with my advisor for the last year, but it has been difficult! Everytime I say to him, we need to talk and I want to move my investments, he takes me out on a nice date, listens to me and then goes on to scare me into staying with him.

He tells me EasyEquities is not the right platform for me and I should be careful of companies like 10X. It does not help that he also butters me up and tells me how great I am, while also telling me about his life, so I end up feeling I can’t leave him because he confides in me. My people-pleasing self feels bad for wanting to break up with him. It's the perfect emotionally manipulative relationship and I JUST CAN'T LEAVE! 

How does one amicably break up with their financial advisor? More importantly, how do you leave them when you have a fear of managing your money independently? 

I have listened to your podcast, and some episodes more than once. I read Sam Beckbessinger's book and Vicki Robin's book called Your Money or Your Life. I aspire to be a Patrick Mckay and I have a financial strategy to reach FIRE, but my greatest hurdle is letting my financial advisor go and trusting myself that I can manage my investments myself. 

When he is not around I feel as though I can manage my money independently and I do not need him, but after meeting with him, I leave with a great sense of fear about moving my TFSA from Sanlam to Easy and moving my RA from Discovery to TenEx or Outvest.

All the financial aspects that do not involve him I have managed relatively well, like my emergency fund. I know I can manage my money, I just fear that if I move my investments to the "big bad world of ETFs" (which is how he makes it sound), I will lose everything! I know he may be playing Jedi mind tricks on me, but how do I stop myself from being tricked! Also, he is not a bad person, he is a very nice guy, but I think this is part of my problem, I am making this whole relationship too personal! I feel defeated! 

Sandile

I stumbled on this product by Sygnia where you can get direct exposure to Berkshire Hathaway.  

Here is why I’m looking into buying into this fund:

• I believe that Berkshire is going to have ample opportunity to buy really decent businesses at decent prices as Covid continues to decimate some much needed industries. 
• I believe Berkshire is one of those great businesses that one can buy at a decent price, thanks to Covid;
• I bought a few units in late Jan through EasyEquities and the costs to transfer funds and transact in USD was rather hefty, so I think I’ll leave that to a local fund to handle that;
• I have looked at the S&P500 (which I hold) and in my view, the Berkshire allocation there is rather small and I’d like more exposure;

Sygnia offers this fund for “discretionary savings into a 5-year endowment, a retirement annuity or a living annuity”. I would like to avoid setting up an RA with yet another service provider at the moment and I have no need for a living annuity, which leaves me with the endowment fund option.

From the little that I could read up on endowment funds:

• I am fairly comfortable with the idea of leaving the cash invested for at least five years (if not more);
• My marginal income tax rate exceeds 41% so at 30% tax, the fund is saving me some element of tax;
• I have set up an emergency fund (around 6 months’ salary) so I think the risk of cancelling the endowment before 5 years is low;
• TFSA has been maxed for 2021 year of assessment. I contribute far less than the allowed 27.5% into my RA (I am busy assessing contributing into an RA vs increasing my employer-pension fund contributions);
• I am just uncertain if I’m opening myself up to more unknown risks/complications/costs by using this structure.

Kimberley 

I am a shareholder for a company who has moved operations to Mauritius.

If our company is lucky enough to declare dividends, this will now be paid in USD. 

How does this affect my tax?  

Is there a way I can get it in ZAR without losing so much to tax or is it better I keep it offshore ? 

I like the idea of keeping it offshore for emergencies or as a “life insurance” for me when I pass away to leave to my daughter. Is this possible with only holding a SA passport?  

Perhaps I could open an offshore trust and list her as the beneficiary and the dividends get paid into that? 

Could I open a USD trading account on EE and get the dividends paid directly to that? 

Is what I’m wanting to do by not bringing it into SA even legal?    

I feel there are not enough bubbles, chuckles, coffee and chai tea to get me through the questions I have and the changes I need to implement to get my financial ducks in a row.  Right now these ducks have ADHD and when they seem to be in a row, they decide to go off on a fucking tangent.  

Anton 

I inherited a farm in 1994 and sold it in 2019. I have the value of it when I got it and when I sold it. I did not get a valuation in 2001 when CGT started. I would like to know how to work out the CGT on this transaction. 

Download the calculator here.

Moore

I am 27 and have a pension/provident plan with my employer. I would like to have an RA for a top up.

I would also like to invest in shares. I don't know how to go about doing any of those.

I have an EasyEquities account but I don't really know which shares to target, and for which amount every month. I have a R1000 that I can divide for those two financial goals. With that amount of money and my age, I am not even sure if that will be enough to contribute. I’ve only been exposed recently to this saving and investing movement. I was so ignorant. 

Thanks to the Fat wallet Community on Facebook I have managed to put some savings for Emergencies with Tyme bank.

Catherine

I’ve tried the Interactive Brokers demo account and find it a little intimidating. I don't know what options or margins are, and I don't want to enact them by mistake by clicking the wrong button. I also imagine their customer service is not catered for noobs like me. Having said that, the platform is becoming less intimidating the more I play with the demo account.

Another option is to buy the shares through a Standard Bank Webtrader account, which has broker fees of 0.345% and annual account fees of 0.26%, and then transfer the amount across to my EasyEquities USD account to avoid paying ongoing annual fees.

Do you have any thoughts on each of these options, considering that my goal is to pay the lowest fees possible over the next 20 years, but also have a relatively user-friendly experience. 

I don’t have a credit card. The only time this has ever been a problem is when a hotel or car rental company requires a credit card for a booking or deposit. It is pretty frustrating being at an airport and unable to rent a car. And are there any ways to get around this booking/deposit problem without having a credit card? And do you know of any reasons to have a credit card aside from this (assuming I don't need the credit)? Are credit cards generally better than debit cards for general spending while travelling?

Melisha

I have two kids in grade 4 and grade 0. I usually save up the school fee money to pay once off and get a 5% discount in December of the previous year.

I anticipate a 10% increase in school fees. So essentially I need to save R20k a month for both kids' school fees for the 2021 school year.

We usually put the money into a savings account but now the interest rates are so low. At the moment the money is in a Tyme bank account goal save but i was wondering if there was something better out there? Something with low risk, short term and potentially to beat money market type accounts. 

Our friend Walter made a site called Rate Compare https://www.ratecompare.co.za/. 

Tristan

Lately I have been seeing ads on YouTube for a financial service app called Franc.

It has 4 stars on the Google Play Store but I was wondering if you had heard of it, seen it or tried it? Lastly, can we trust Franc?

Ken 

What is all the hype over Mexem Africa about? I have gone to their website but, quite frankly, it looks like a scamsters website (although I thought the same about Easy Equities' website too, before I started using it). 

I don't see any info on tax free accounts, and they mention all sorts of foreign currencies but not much about how you convert your rands to Dollars/Euros/etc... 

The little section on fees is as clear as mud.  As an ETF investor (tax free and discretionary) should I be looking into it in a bit more detail? Would really appreciate a chat between you and Simon on this.

Brian

I've been with etfSA since 2012. I am busy updating my etf portfolio and want to know if I should shift some funds or all to Easy Equities. I've already bought MSCI China through my Easy Equities account that I registered a few weeks ago. What is your suggestion? 

Most of us kick our 20-year-old selves for spending all our money making poor decisions in Melville instead of taking full advantage of compounding. The financial independence, retire early (FIRE) movement has given us valuable tools to reach our financial goals despite those late nights in Melville. I discussed that with FIRE-man Patrick McKay here.

Since regret over lost investment time is something so many investors grapple with, we wondered whether we could quantify exactly how much we missed out on in order to make it up. It’s a simple question, but the solution is hella complicated. I tried to do this for my own situation like this:

1. First I worked out how much money I would have needed today so I could stop contributing to my savings and still reach financial independence in 10 years. I never considered this before, but it’s basically the baby version of financial independence.
   
   To do this, I multiplied my current expenses by 300 to get to my FIRE number. (I always do this, even though I know that number by heart.) Then, using an average growth rate of 8%, I worked out what that amount would be in today’s money. 8% is slightly below the 9.4% annual return the JSE ALSI achieved over the last 10 years. (You can use a future value calculator online to do this.) 
2. Next, I subtracted what I managed to save so far. 
3. I divided the difference by 120 months—10 years—to get to the monthly rand amount.

The bad news is it’s a lot of money. To add that to my current investments to reach my FIRE-goal, I’d have to take on another job. The good news is, I don’t have to stop investing now. Remember, that’s the amount of money I would have needed to stop contributing to my investments today.

I wanted to arrive at a simple rule of thumb to help us think about making up for lost time. It turned out to be far more complicated than that, but hopefully this discussion gives you something to chew over. I’m excited to hear your thoughts.

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Win of the week: Stippled 

I recently listened to your perfect money month podcast. 

I for the last 20, and my wife and I for the last 10  years, have followed a very simple "perfect money month" template. We are both 43 now and have recently become financially independent based upon the 4% rule (we are actually aiming for the 3% rule which will probably take another 3 years to achieve).

The monthly template has been as follows:

• Give 10% of after tax income.
• Save 15% into a Pension, Provident or RA.
• Budget discretionary spend at the beginning of each month. [We use 22seven]
• Initially pay down debt, then Invest, the extra money [after we became debt free 7 years ago redirected to global broad based ETF . .  no individual shares].
• One great dinner out each month . . .  but only one :-)

General rules

• No debt except for housing [This means we still driving "student" cars]
• Automate as much as we possibly can
• Review insurance, cell phone and medical aid annually [In November for us]
• Review wills annually [In June for us]
• Balance investments evenly between each other to maximise tax benefits later on.
• Married out of community of property with accrual

This has really been an unsexy and boring process to follow month in and month out.  However the results have astounded us.  

They are:

• My wife was able to resign from her job when our first child was born seven years ago to be at home with our kids (we now have 2) which was always a dream of hers.
• We are now financially independent and we have made more money from our investments over the last three years than from my full time employment!
• We are able to afford to send our kids to any school of our choice which was always an important goal for us [Not that we automatically chose the most expensive, we just never wanted money to dictate the choice].
• We are able to support friends and family financially if and when the need arises [Never a loan, always a gift]

We also recognise how luck and privilege have played a very large part in our journey.  We both have tertiary education and have never been unemployed unwillingly.  But we have not wasted that good fortune and rather used it to create stability and choices for us and our family.

Just in case I give the impression of all work and no fun . . .  I took a year off work in my mid to late twenties and spent it backpacking from Cape Town to Addis Ababa and climbing mountains in South America.  We take regular holidays locally to the beach and have taken 4 great international holidays in the last 10 years [We were even able to take my mom inlaw to Venice - It was her first trip out of SA].

We can honestly not recommend more strongly the boring "Perfect money month" idea.  It has benefits far in excess of what you can imagine when you start.  Approximately 240 months in, and we can say that without any hesitation. 

Mike 

The TERs of our global index trackers are extremely high compared with for example Vanguard. Is it not better to purchase them directly through the USD Account rather than purchasing a global tracker from one of our local providers at more than 6 times the fees? Eg. Vanguard VOO is 0.03% and the cheapest S&P500 tracker in SA is I think Sygnia @ 0.2%.

I wonder why our RA providers use global trackers from local providers if the fees so much are higher? Maybe it is just easier for them cause they don’t have to move any money offshore but surely it would be worth their while to do it?

Edwin

I have been wondering if you or Simon have some tips or observations regarding the income side. I have been a salaried employee for most of my 15 year career and have spent a total of 6 weeks in my working life unemployed. I am currently employed. 

My question, therefore, is what else can you advise me to do in the area of increasing income, besides simply starting a side gig. I have tried a few side gig ventures before. Some are still going, but could never replace my income. It's a lot of work and I’m wondering if it’s worth giving up on this and just focus on being indispensable to my employer. Should I be job hopping multiple times maybe? Is increasing your income supposed to be this hard? Is it a worthy goal to actively chase?

Hans

If Jared is doing contract work in Kuwait and spends some of the year in SA, he might owe SARS tax on his foreign earnings over R1m. This is a change in the tax code as of March this year.

Satrix has an ALSI Unit trust. Given that Satrix and Easy Equities (same platform) already treat ETFs as Unit trusts, i.e. aggregate buys and execute them in bulk, how would this be any different?

Terence 

Many companies will be taking on that strategy in the future instead of paying bonusses etc. In fact retainer shares, bonus shares & even shares relating to ROCE (return on capital employed), BEE scorecard achievements etc are included in share awards these days.

We are probably going to get to a position in SA where inflationary  increases will be negligible (like Europe as an eg) and there will have to be creative ways to retain good staff. 

If your friend is working for a good company and believes that the potential can be achieved during his tenure, why should he not participate in a share scheme? Many employees are in the pound seats when the company lists on the JSE as they potentially make buckets of cash at vesting. Agree, many don't as well, but you should rather encourage that thorough homework prior to participating and or limiting the amount you purchase. Normally they discounted shares anyway and Management knows the upside on vesting or buyout occurs.

Marielle 

My grandmother was drawing her dividends from Ecsponent on a monthly basis to sustain herself.

She does not have a lot of money. I believe she has around 300k. She is 68 years old and in good health.

What would be the best way forward? Any ideas on where to invest so that she can draw an income and have funds available for a rainy day.

Nico decided to move his RA from Momentum, where he pays 3.2% per year, to OUTvest because he qualifies for the R4,500 fixed fee. Momentum want to charge 15% of this lump sum to move his RA. It’s double the growth he achieved over the past 10 years.

I know you went through this process recently and I really need help.

There’s more guesswork involved in retirement planning than we’d like to admit. If you’ve ever gone through the retirement planning process with a financial advisor, you know what I mean. To calculate how much money you’ll need for retirement, you need to factor in the expected inflation rate as well as the expected growth rate of your investments. If you had the ability to know those things with any degree of certainty, you wouldn’t need to do any retirement planning because you’d be psychic. 

One of the most crucial guesses you have to make is how much money you’ll need in retirement. It’s hard for us to imagine our lives a week from now, much less decades into the future. How do we tackle this dilemma?

The Financial Independence, Retire Early (FIRE) movement offers a useful rule of thumb to help here. To ensure you have enough money to retire and never run out of money, you need 300 times your monthly expenses. This is an excellent shorthand, because it forces you to put as much effort as possible towards controlling what leaves your account every month.

However, using your current expenses would be to over-prepare. Some of your current expenses go towards preparing for your retirement. Your long-term savings and your long-term insurance products exist solely for this purpose. Once you reach financial independence, you go from having to look to others for an income to paying yourself. 

That means your cost of living will automatically reduce by the amount of money you put towards retirement the minute you reach financial independence. Once you’ve accumulated enough assets, self-insurance becomes a reality. Stealthy Wealth does an excellent job of explaining how that works in this post. That’s another expense you can take off the list.

But what about the hobbies you plan to take up once you have more time? How should you plan on paying for those? What if you wanted to take a holiday?

In this week’s episode, we talk through how you can think about your expenses in retirement when you’re working out your financial independence number. 

We are once again so grateful to OUTvest for funding this week’s episode. If you’re looking for a place to save towards your retirement goals, have a look at their excellent product here.

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Win of the week: Joy

I think another example of upside risk is in studying. It is possible to work so hard at school and university to get top grades which give you a suite of distinctions and awards, but at what cost to friendships, hobbies, physical and mental health? 

I know many adults who because of the sacrifices they made to achieve those things have always had that as a huge part of their identity. I’m sure you know, for example, middle aged men who are still called by their nickname from school or are part of the old boys club. Really? 

Your qualifications are only important so far as you can actually make practical use of them. Who cares if you qualified as a doctor cum laude from Cambridge university if you are unprofessional, unkind and thoughtless? Or if you can’t even balance your personal finances 😂 

My dad's idol was to retire early. He achieved that well. He never thought much about what he would do after that and as a result has really had (to my thinking) a pretty poor quality of life wandering aimlessly through this supposedly amazing thing called “early retirement”. When the idol shows itself as gold plated outside but hollow and empty on the inside 😢

Rafi 

The number you get when you multiply your expenses by 300 does it include your Pension/RA, paid off house?

Lyzelle

I have Old Mutual Unit trusts. I would like to get out of there.

I suppose I already know the reply for this one, since you have said numerous times that you cannot time the market, but here goes... do you think now is an exceptionally bad time to move money from the Unit trusts elsewhere? 

Melanie

I don't understand half these fees. Are these fees normal or should i run for the hills and move my RA.

1.Yearly marketing and administration charge % of fund value 

First R500 000 4.20%

Next R500 000 3.75%

Excess above R1 000 000 3.50%

2. Guarantee charge (Yearly guarantee charge % of fund value=1%)
3. Deductions made by the asset managers:

Sanlam Escalating - Coronation Balanced Plus Fund P (TIC 1.15%)

SATRIX Dynamic Balanced Fund B Fixed (TIC 0.30%).

Herman 

I moved to Belgium recently (for how long I don't know). I thought I'd share some interesting personal finance observations from here. Not really applicable to SA, although it did help me to rethink some assumptions about "the way things just are" in SA:

First I have to say that I pay a hell of a lot of tax on everything else - like 50% on any income above €37000, plus a lot of VAT, plus municipal taxes. So this is not to say that SA is bad and Belgium is good, but:

- My bank account is free. I also get a Mastercard debit card with it. All transactions, withdrawals (internationally as well) are free. Also 0% interest, so in that sense you pay for it. But still cheaper than in SA (perhaps the newer banks are better).

- Savings accounts: interest rates of 0.1% p.a. are standard. That is lower than inflation here, just as interest rates on savings accounts in SA. You can do better in special accounts, but you really want to go for ETFs for saving.

- The only capital gains tax here is attracted if you flip a house within 5 years of buying it. No CGT on sales of shares...

- No dividends withholding tax if you reinvest the dividends.

- DeGiro is a Dutch broker where you can open a free account and make 1 free purchase per month of an ETF. Like, zero deposit and withdrawal fees, zero monthly fees. etc.

- ETFs domiciled in Ireland attract no taxes in Ireland. Many ETFs are domiciled there for that reason.

- Hence, investing through DeGiro in some ETFs in Ireland attracts zero taxes - CGT or DWT, and zero fees. It is like a TFSA in SA, but with no cap!

- They also have things like RAs here. They suck as much here (if not more) and for the same reasons as in SA. High fees, prescribed asset percentages leading to low growth, exit taxes (only 8%), etc. Also smaller tax breaks initially.

I think the SA financial services sector is more advanced and competitive in their offerings than the Belgian sector, although Europe is much more focussed on ethics etc, which I really appreciate. Nevertheless, I find it amazing that in SA a TFSA is this special thing, but here it assumed in the FIRE etc. communities.

Neville wanted us to look at this ETF holdings. Catch Nerina Visser's presentation on how to think through your holdings.

Mary 

I received my IRP5 as a non-provisional taxpayer. Currently I contribute 23.5% of my base salary to two annuities.

I realized that this percentage is calculated on my basic salary, but on the IRP5 there's an income code portraying gross income received and this amount is much higher than the base salary. 

Could this higher amount be used to calculate higher contributions without it rolling over to the next year  so long as it's still under R350k as capped by the government? Or is it better to stick to base salary limits?

Molekoa

I've been working for 26 years and decided to resign as a civil servant. What is the best option for investment. 

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week’s episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It’s so stealthy, those risk-tolerance questionnaires financial companies make you fill out don’t even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

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Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I’m partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week’s episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It’s so stealthy, those risk-tolerance questionnaires financial companies make you fill out don’t even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

• Subscribe to our RSS feed here.
• Subscribe or rate us in iTunes.

Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I’m partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

Not all investment products are created equal. This week, listener JP was struggling to understand why his RA was performing so poorly while his tax-free account was making money. The answer is important for everyone who holds more than one investment product. 

This week we help you (and JP) work out what exactly you should be looking at to ensure you’re comparing apples with apples. We discuss the role of Regulation 28 in the performance of retirement products, how different asset classes behave, the role of active managers and what the rand/dollar exchange rate has to do with it all.

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JP 

I need some clarity on how an RA can perform so poorly when an ETF does so well. 

Firstly rate of returns: Investec is -17.58 where my Satrix is +6.4 percent over this troubling period. That's a difference of almost 24% in the same market. 

The one with Investec is with a financial advisor who charges 2.8% fees (that includes Investec platform, admin, etc) and is supposed to be a Inflation + 6% growth portfolio.

My Satrix platform charges less than 1% fees.

He holds the following Satrix ETFs: Divi, property, 40, World and S&P 500.

How is it that financial institutions and professionally trained people can't get investment right but an index investor does?

Win of the week: Alida

When are dividend distributions assigned?

I've noticed that most ETFs will only distribute the dividends for a financial quarter a few weeks after the end of the quarter and it has me wondering:

If I own some ASH 1200 at the end of the quarter, but then sell that before the dividends are distributed, do I still get the dividends for that quarter or not? Do I have to hold the shares until the dividends are distributed a month or so after the end of the quarter?

Similarly, let's say I buy after the end of the 1st quarter, but before the distributions, would I then get the dividends for the 1st quarter?

Pascal 

I've spent time reading as much as I can find about all three of our global property ETFs to make a decision on which one to hold. Even though it will form a small part of my overall portfolio, this will be one of only 3 ETFs I ever hold, and plan to hold it forever, so it's important for me to make the right choice now. 

The 1nvest product seems like the clear winner and I'm buying it currently. They simply chuck your funds directly into the iShares Global Property REIT ETF in the US, which seems like one of the best and most widely used ETFs in its class. It tracks the FTSE EPRA/NAREIT Global REIT Index. The index is used by a ton of other ETFs around the world.

The CoreShares and Sygnia products track some other arbitrary thing: The S&P Global Property 40, which sounds super official until you google it and the rest of the world is like.. "nah dude, that's not a real thing" It seems that these are the only two products on the globe that I can find that actually track this 'global index'. 

If you look into ASHGEQ's S&P1200, you get charts, factsheets, methodology documents, everything. But there's almost no information online on this one. It's basically a ghost index. Something about this just makes me feel uneasy, but maybe I'm being too pedantic? What are your thoughts? 

Also, and this was the final kicker for me, they pay dividends bi-annually instead of quarterly like the 1nvest product or any other self-respecting, well-to-do fund. 

If the 1nvest product is basically just rolling up my funds and passing it to the US iShares ETF, is that hefty US withholding tax already baked into all my dividends before they come full circle into my account? 

If that's the case:

Am I being a dumbass holding this thing in my TFSA instead of one of the fully locally-crafted products like the Sygnia? Now, I understand that any global ETF has a certain amount of baked-in withholding tax from other countries, but if the 1nvest fund is basically a middle-man for a totally foreign ETF, am I needlessly adding an entire second layer of unavoidable withholding tax into my supposedly tax-free portfolio? Or perhaps is this all pretty negligible in the grand scheme of things? It's okay (in fact preferable) to tell me that all of this is literally a non-issue and it's just my lock-down brain overthinking literally everything.

You guys mention the CoreShares one a lot, but... its more than twice as expensive as the Sygnia (in terms of TER). Why would I go for something that does the same thing for more than double the price? What am I missing here?

Bea

I have only recently started earning a relatively large amount of money abroad. At 61 I have to make sound investment decisions - there is very little margin for error at this stage! 

The kind folks over at the Fat Wallet FB group have assisted, but I still feel the need of some more practical pointers to guide me. My situation is as follows:

* I have around R38k monthly to invest

* My Emergency Fund is available and will most likely use Tyme Bank.

* I am going to choose Brightrock for disability and dread disease cover - heard about them on the Fat Wallet FB group. Are there other providers which you could suggest I try for the cover mentioned? 

* I have no debt...however:

* ...I pay R2 500.00 monthly for storage of my things in South Africa and shuddered when I heard Kristia's definition of an asset. It's a nightmare cost and really don't know what else to do with beloved items of furniture.

* I plan to open TFSA and have R36k available for tax year 2020/21 deposit as soon as I can. I have no idea what to invest in. ETFs sound good since in this case I will hopefully have no need to touch this money, hopefully not for a  long time.

* I have around R300k ready to invest at present - the foundation for the house savings.  I have opened a Sygnia Money Market Fund to invest this. However, I am concerned that I could do better in terms of interest elsewhere! Would I be keeping abreast of inflation etc? 

* I would like to buy house in around 4 years in SA, hopefully cash - with the money I hope to have saved from now until this point. In this case,  I wil need to work until age 70 to save in order to cover my living expenses ( age 65 - 70). This is the reason I have been advised to use a money market vehicle - safety and availability, but could I not do better elsewhere?

Do you think that this is the best course of action in my case? There is a need to both grow and protect my funds. However, I have heard Kristia talk about Index Funds and wondered if these applied in my case. They sound wonderful. Someone mentioned that I should be careful of my asset allocation - specifically stocks because of the time factor?

* I have heard Simon mention that he has an RA. Should I have one? 

* What are your thoughts on a living annuity in my case and how does this product work?

* I have been advise to rather place the salary I earn in the Gulf country into a USD account and not bring it into ZAR. I haven't a clue on how to do this and wonder how safe this is? Interactive Brokers and Degiro not applicable - the former's fees are too expensive and I don't feel confident about Degiro. I get paid in a Gulf currency and most likely have the option to transfer funds to another account  in any of the major currencies.

John

Are European joint accounts included in your estate upon death? Also are they subject to SITUS tax from foreign jurisdictions?

Santosh 

Do we invest as much as possible and never enjoy it? Presumably most people want to leave a fortune to their heirs, thus amassing a stash and never actually drawing down for purchases - yes like a car, holiday or some other significant purchase. 

At what point does one reach a "number" and after this anything more, whether you actively add or it grows via its own momentum, do you start just taking out ?

I suppose this is really relevant for those without dependents and singles where there really is no one to leave it to.

Those of us slowly building a portfolio every month accept our investments will be determined by our overall strategy. This strategy would include our ultimate financial goal, plans around asset allocation, diversification, tax planning and future drawdown management. We understand we have to consider these variables throughout our portfolio, including our retirement products. New money coming in goes towards old strategies. It’s boring, but effective.

Those who just came into a large amount of money are subjected to a terror to which the rest of us are immune. Where is this money supposed to go? The bigger the amount of money, the more flimsy former investment strategies seem. Oddly, new investors with only tiny amounts of money to invest seem to experience a lot of the same anxieties. At the extremes these decisions feel very large indeed.

The one difference between making a choice about your first investment and the biggest investment lies in tax planning. Your first challenge is to hang on to as much of that money as possible. From there we’re sad to say it all comes down to your strategy. What do you want this money to achieve? Which products are most likely to get you there?

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Jacques 

I sold shares in a small private company.  I now have to decide what to do with it and to invest it wisely for the future. I am 50 years old and married with two 8 year old twin daughters (having waited for kids for 20 years!). 

I have current income streams and do not have to use any of the capital to supplement income.  We are renting and own a plot hat has been paid for in full.  I need to decide to build a house now on the plot or invest the share money in a diversified portfolio for strong capital growth in the 15 years to come before retirement at say 65. I have an RA currently invested in a portfolio of shares. 

I looked at Simon’s portfolio. I like his allocation of shares to “Death do us Part”, Second Tier, ETF and Tax Free groupings.  I read about the “Ashburton Global 1200 ETF” (ASHGEQ) fund that Simon proposes and the low fees of Outvest.  

I need to decide how to structure the capital as the current levels of some share prices may present a once in life-time opportunity for me to buy low PEs (e.g Firstrand, etc.). I am willing to move the RA from Sanlam Private Wealth to Outvest.  I need to get Tax Free Investment accounts for the kids, my wife (perhaps all 4 of us) and also invest more into my wife’s RA (very small and also willing to move that to Outvest).

I can afford to be aggressive and have no debts. I am however scared of my own emotions whilst trading so I want to follow a long-term passive strategy and not trade for the short term (speculate).  I have opened a brokerage account, but have not purchased any shares or instruments yet.

Win of the week: Albert

In podcast episode number 169, I had asked whether you would set up a Patreon. The rationale given for not having one seemed sensible at the time. Nonetheless, since August last year, following your sound advice regarding financial planning and cost management in general, I have saved quite a bit more than I would have otherwise. 

For the most part, this means I do contribute more to my savings and investments, but I have also been growing a side savings account, for your benefit. Attached to this email is a Takealot Voucher, spend however you wish. I would recommend allocating it towards chuckles and bubbles, because I enjoy the somewhat more chaotic tipsy episodes, but you know it’s a free world, I know there may well be more pressing matters at hand.

I am glad to have an emergency fund, and am currently parking my Covid-19 shut in lifestyle savings into a Tyme bank account. I currently have just over 8 months’ worth of expenses in cash, but perhaps it would be prudent to be in a similar situation to Simon, by having the maximum allowable tax-free amount on the balance sheet.

Ordinarily I would like to carry on contributing to Tyme, but their savings limit per customer sits at R100 000, a number I will reach shortly if WFH continues. It seems that the ultra-competitive bank savings account offerings from last year have all but shriveled up. The most competitive 32-day account is African Bank’s with a 5.85% per annum. This bothered me, as I know that the New Funds Traci ETF yields about 7.4%. 

I would like to know what the cost implications would be for the ETF, as it would sit in my discretionary brokerage account. I know I would be paying Brokerage commission, the Investor Protection Levy and VAT on costs every time I increase my savings or cash out, but what are the tax implications?

As this is a total return ETF, I would not get paid the interest into my account as this would be re-invested into the ETF. Presumably I would have to sit down and spreadsheet the actual interest earned for that tax year. 

Should an emergency arise, and I need to sell some units, would I be required to pay SARS capital gains tax on the interest earned as well? Your 2019 article about it on J1L also pondered the same question, so I wondered whether you had already received a response from one of the magical tax elves.

Old Mutual offers the ability to save in one of its money market unit trusts which also tracks the STeFI, it comes linked to a transactional bank account. It is a unit trust, so it has a higher TER, but if it eliminates capital gains tax, the other exchange costs and the added admin around tax year end by giving me an account statement for the unit trust, I would be willing to give up 0.1% of the yield difference between it and the Traci.

I would like to travel overseas after I get jabbed with a Covid vaccine. I have put money aside in a separate goal save. I get quite queasy when looking at ZAR exchange rates and what they may do between now and when I wish to travel, so I looked into SA based dollar/euro denominated accounts. Their interest rates on these are about as exciting as a finding a fly in one's soup. Would it be better to save for travel expenditure in dollars/euros in a hedge against a rand drop, or is it better to save in rands and suck up the volatility for the next 12 - 18 months for this purpose? I’m thinking of splitting the difference 50/50.

Marco

So question on Market Value Adjusters: Are they bullshit? I suspect that they are. My wife is moving her RA from the big mean green machine to Sygnia. She received a notification that an MVA has been applied to her RA to transfer and that it will reduce the amount that she is expecting by 5%. Is this just a way to keep people from transferring, or another penalty that's added on top?

I sort of understand what an MVA is: save from the good years to prop up the bad--but why add this extra "bonus" to a financial asset? To me it sounds like a turd wrapped in a sparkly bonus wrapper that just hides how bad active managers treat customers.

Mark

I have 20% of my Tax free investment and ETF portfolios dedicated to CSPROP and STXPRO, but every month when I buy these, I feel I might be throwing my money down the drain. Should I keep buying property ETFs as part of my TFIA and ETF portfolios or am I better to just hold what I have for a few years and not buy more every month? Should I drop my 20% allocation to 10% or less?

Alexander 

Having just opened a Tax Free account, I’m ready to jump in with my entire 36k. 

I know Simon’s advocated in the past for putting it all in at once, but has the current situation changed that approach at all?

With my RA pretty much maxed out for last tax year, and this year looking to do the same, should I still be weighting my TF more to international markets? Or is it the case that since the rand is very weak against these markets that I’ll be doing myself a disservice in buying now? 

I am 25 so as an investment I plan to leave (probably till retirement) it may not be do or die, either way I would like to make an informed decision. Is perhaps this year the year to focus locally with my investment and then return to my international focus with my TFSA at a later stage? Uncertain of how to proceed during this shaky and tumultuous moment.

What do you recommend one does with an emergency lump sum of around 250k? I was surprised to see my Depositor Plus account with Absa having lowered interest rates as of April 2020. I was wondering whether you can recommend a few accounts or platforms to look at during this time now that interest rates are fluctuating?

How would one start investing in the UK/&/Europe if one has a bank account in the UK, but no national insurance number? I occasionally get paid into that account by European clients and was thinking of using that channel to invest offshore, paying any applicable tax through my local accounts. Let me know if you have service providers you would recommend for something like this as well please.

Shailesh

I listened to "Five concepts that will make you rich". Simon mentioned in passing if you committed to your R33k annually (at that time) one could have as much as R25 million in 25 year's time. 

How is this possible? My understanding is that your earnings are calculated on the amount it was initially bought and hence it is not really compounded except for the dividends that will be reinvested.  Should one sell their ETFs and re-buy them annually to compound it?

This is a question about how shares make money. We wrote an article about that here. 

The financial services industry has done nobody any favours. Not only were many of our parents sold retirement products with exorbitant fees, they are also offered the same awful choices now they’ve reached retirement age. They have learned the hard way you can spend your life doing everything right and still lose because of bad products with high fees.

This week we received five different questions from listeners who are trying to help their parents navigate the terrifying world of retirement money. For many of us, this is the biggest financial decision we would ever have to make. If you’ve been told you aren’t qualified or equipped to make these decisions your whole life, odds are you’re not going to start trying at 65. 

Our parents need our help navigating this terrain. Hopefully this episode also helps us help each other.

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Win of the week: Emma

I am a proudly SA opera singer with a penchant to be a financially stable artist. I started my finance journey properly from last year, and was educated about Just One Lap by my mother, who was your winner of the week a while back.

I wrote a blog post this month, hoping to encourage a culture of saving and financial savviness amongst my followers, and thought perhaps you might want to feature it in your podcast.

Kenya

My mom has recently left her job to take a few months off. Her pension fund (currently held with Old Mutual) needs to be transferred to a preservation fund until she retires in two years. A financial advisor offered her a once-off fee of 1.7% to give advice on which preservation fund to choose (and to help her complete the forms- which according to her are actually very simple). Initially it didn't sound like much, but I was shocked when I calculated the rand value of this fee. The fund he’s recommending still falls within the Old Mutual stable and has these costs:  

Total investment charge: 0.63% p.a 

Fund access: 0.18% p.a 

Admin fee: 0.31% p.a 

Totalling: 1.12% p.a 

Alternatively, he has suggested a fund with Coronation with fees not dissimilar to the above. 

Is this a fair offer? Are either of you aware of a better lower- cost preservation fund that she can choose? Bearing in mind she has two years before she will be required to access it and it is required to go to a preservation fund. 

Jenna

I started listening to your show this year and have become completely addicted. I went back to your old podcasts and have listened to about 50 hours already.

My mother has never been great with money. However, she has somehow managed to pull through.

She will run out of money soon and may need to go into debt. I'd like to help in any way I can, so I've helped her reduce her costs and get a better overview of her finances.

She is 63 years old. She has no retirement fund or any savings aside from R100k in cash in a money market account. She has a brand new car, so her expenses shouldn't be too high for a few years. 

She has a home loan that she can access at any time.

She has a house valued at about R2.5 - R3m, paid off. 

The house has a back section that, if she renovated it, she could possibly rent out, however this would be expensive. 

Asset-wise she seems to be in a ok position, but her expenses are more than her income and she'd like to retire soon. I don't think that she would be able to manage a large amount of money (if she were to sell her house.) 

How can she continue generating income for the rest of her life while losing money each month? What's the best strategy for this situation?

Brendt

I recently had a look at my parents' financial situation. They already have a RA that has been converted to a living annuity. 

When I inquired as to the fees that are charged on the living annuity, I almost fell off my chair.

This got me thinking: we are so focussed on getting a low fee RA going that we totally forget that the RA forces you into a living annuity. When choosing to invest in a RA one must also consider the fees that will eventually be charged on the living annuity.

The current high fees on living annuities (the cheapest I could find was Sygnia at 0.86%) makes RAs less palatable.

Nicole

My mom's money is currently with old mutual but she's retiring at the end of July. The living annuity they suggest will cost 2.2% per year and encompasses funds like Allan gray, coronation, ninety one etc. 

I'm tempted to recommend that she rather go with 10x/etfsa or sygnia /the new retirement solution platform by Nedgroup (brand new so not a lot of info there but more choice than the other 2). With one of the first pair she just needs to choose a path and thereafter it's very little input from her side which makes her more at ease but I'm not sure there's enough diversification and control. With the others there might be too many options and the wrong funds chosen.

Is it sufficient to take the same approach as I would in my regular investments but lean slightly towards the conservative side? Like a world etf and then one that has more cash and bonds?

Ross 

I am 35. My dad has a farm and a will that is so out of date it's frightening. He's unfortunately really bad with his own finances and paperwork. I'm trying to find out what the best options are to safeguard against all the legal fees, estate duty etc etc in the event of his death and not to have to sell off pieces of the farm in order to cover all the fees and taxes involved. 

I am looking at life insurance policies but at my dad's age (70) they are not cheap. I suppose it’s better than trying to find that liquidity out of your own pocket or selling off assets to pay all the legal fees and bullshit when the time comes.

There's a company called Capital Legacy that my insurer put me in touch with that deal with all the above mentioned woes. They draft the will, have a legal team, executors etc and cover all the legal fees and taxes in your monthly premium. It sounds all well and good I just wanted to find out if you guys know the company at all, and how legit they are? And if you have any better suggestions? I have listened to the "what happens when I die" podcast, but living in the Corona era maybe things have changed since then?   

Richard

Now that we've entered unprecedented times, including the exponential use of the word 'unprecedented' how much of the old rules are still completely relevant.

• Is renting still better than buying, considering interest rate cuts? 
• Is a broad ETF still the best option? Or should we focus on post-COVID winners in tech?
• How big should our emergency fund be, when the entire country is in a state of emergency?

Marco

I am looking to move my R.A to Outvest. 

According to my latest investment summary: My value on 1st of January 2019 was R228 797.72 and 16 months later on 1st of May 2020 is R297 692.17. In that period my administration and advice fees were R6510.21.

With my current R.A invested in the Coronation Balanced Plus A fund from June 2005 , are the fees of the fund (which is 1.25% excl VAT) included in that admin and advice fees? Or am I paying that 1.25% excl VAT on top of the R6510.21? Are there any other fees I am paying that I am missing?

The Coronation Balanced Fund appears to have done well, I think? Not really sure how to read the performance well, taking everything into account. Ie fees etc

Would you recommend I pull my chute with the above mentioned R.A? Also , Outvest have four funds that are available for their R.A

They are:

• Coreshares OUTcautious Index Fund
• Coreshares OUTstable Index Fund
• Coreshares OUTmoderate Index Fund
• Granate Money Market Fund

Can you shed any light on these? Which would you recommend? 

You may not be very happy with your workplace pension fund. In this week’s episode, we think through some of the things you can do to remedy that situation. Pension funds, like all other retirement products, have to be Regulation 28-compliant. That means you don’t have much control over what’s inside. However, you can control your contributions and the fee you’re willing to pay. You can also insert yourself into how your workplace pension is managed by becoming a pension fund trustee. 

You can find Gerrie’s article on maintenance we mention at the top of the show here.

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Kyle 

I’ve been curious about forced pension fund contributions in the workplace. Is there any way we can direct portions and where this gets invested? 

When stocks are discounted, would I not be able to take a more aggressive approach and direct this more towards equities? Alexander Forbes deals with my pension fund.

Win of the week: Steve 

Jason 

You said it is "illegal to record someone without telling them".

This is sort of true but in the context described it's not. This is actually covered in the RICA act.

It is illegal to record someone without prior consent. However, the Act sets out the following exceptions to the rule:

• you are a party to the conversation
• you have the prior written consent of at least one of the parties to the conversation; or
• the conversation relates to, or occurs in the course of, the carrying on of your business

Since you are an active participant in the phone call that means you are "party to the conversation" and not eavesdropping and thus can record regardless. It is still considered polite to tell people they are being recorded, but even if they say decline it's not illegal. If you think the person is going to lie then maybe you shouldn't ask. I'm not a lawyer but this advice was given to me by one of my company's lawyers after I recorded a conversation we had with a client who was blatantly lying to us over the phone and I needed proof.

Dhiraj 

One can hold cash in an interest bearing bank account or invest in a money market with a fund manager at a small fee.

Is it safer to hold cash with a fund manager even if one has to pay the small fee?

Specifically is one more likely to retrieve the money from an asset manager than a bank if both were declared insolvent?

Eugene wants to know why one would choose a preservation fund instead of an RA.

Meryl 

How can you find the interest rates of the bond ETF? Obviously this depends on the price but where do you access the return?

On my Standard Bank investment account I have quite a few Sygnia ETFs. In my statements it shows a deduction for ETF fee whenever there is a dividend or interest payment. Have you any idea what this is?

Eric

For a relatively new retail investor like myself the information on your site is priceless, thanks again.  

I just listened to your podcast on Covid bonds and the 11.5% interest sounds very appealing, my concern is SA Inc. In your opinion what is the chances of a default…thinking Greece and Argentina where a haircut was imposed on sovereign bonds.

Nolomo

1. Besides buying shares, what other assets can one accumulate with a budget of less than R2000p/m. 
2. My dream is owning a house where I can live and raise my family. Is it possible to afford a bond with a salary of R10000p/m with monthly expenses of R4500 over a 20year period? I have a R30,000 lump sump
3. Is a bond the only way to own a physical house with a salary of R10000p/m and R4500p/m expenses?

Nadine

I was just listening to an episode when I heard you say you paid $16 for a kindle book! Kindle automatically makes the US store your default store but you can change that to the U.K. store (www.amazon.co.uk). I did this myself and I usually only pay £3-5 for a book on kindle now. The U.K. store is just SO MUCH CHEAPER! 

Google how to do it - I can’t remember the exact steps, it’s somewhere in settings on the kindle. You need to open a U.K. account and connect your card etc. but it’s worth it. 

Ndida wants to know if there are any benefits to using offshore investment platforms over local platforms offering offshore exposure.

John

I hear SASOL may be forced in doing a Rights Issue in the future.. I have SASOL shares that I picked up at the lows in march and now am thinking of offloading them before the Right Issue occurs. 

There seems to be a battle for dominance raging between medical professionals and engineers on this show. This week we happened to receive emails from four healthcare professionals. Considering what’s happening in our hospitals at the moment, we decided to dedicate this week’s show to these heroes.

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Win of the week: Busi

I am a doctor who has worked in both the public and private sectors.

I have a stockbroking account and always wondered what these random amounts of money popping up in my account were. Nonetheless would use the surprise money to buy more etfs and go on with life. Now that that I listen to you guys, I realise that these are dividends. I felt so stupid when I came to this realisation but thrilled at these little rewards.

I also had a chat with an older colleague of mine nearing retirement age. He advised me that the biggest hindrance to one's retirement plans are kids. His advice to me was not to have any. Fortunately for me, unfortunately for my retirement plans, I already have a rugrat and I'm not planning on sending her back!!! 

I thought I'd help the lady who had a question about medical aids in episode 186.

There are medical aid 'brokers', the company Optivest comes to mind. They don't deal with all medical companies however, so like insurance brokers, they have their pool of companies they deal with and so any quotations you get are based on that handful of companies. 

My advice is that since she already gets a subsidy from work on Discovery, to rather remain on there. Switching to another medical aid has implications as waiting periods may apply which is not idealnsince she has a chronic condition with expensive treatment. And much aa it pains me to say this, Discovery is one of the better medical aids. She should prescribe to the chronic programme, opt to collect her medication from a network pharmacy like clicks or Dischem or something, and can even look at switching options within discovery. The advantage of living in KZN is the coastal options work out somewhat cheaper. 

A listener had mentioned considering switching to medical insurance. A medical aid scheme and medical insurance are 2 different things, and though the insurance is cheaper, its best to go with a medical aid scheme if one can afford. 

P.S. What are Chuckles?

Kendra

I have a financial planner who advised me to go with Sanlam Echo Bonus as my RA. My current contributions are about 5% of my income.

I only recently started doubting what my financial adviser has recommended. I have seen the very high EAC of this RA. Is it true that the Echo Bonus is reliant on Sanlam's performance as a company and is not guaranteed at my retirement? I could be wasting money in an RA with high EACs without this buffer of the Echobonus. I understand I will forfeit a fee if I make changes to my RA now, but I would rather do it sooner than later if there are better long term investment options available. Please help! 

The information I shared in this episode was found on the Sanlam Echo Bonus page. Double-check me there.

Carlo 

I am a young doctor. I just started working with one of the big cruise ship companies before the covid 19 apocalypse hit. Currently I am drifting in the pacific on a mission to repatriate some Asian crew members with no idea when I myself will be getting home.

Having some extra time on my hands (to say the least) I stumbled upon your podcast and proceeded to binge it religiously. My mind has truly been blown by your wit, charm, judicious use of swearing, and of course financial wisdom. Somehow you guys have had a calming effect during these difficult times, please keep up the good work.

I have just completed 2 years of internship and 1 year of community service in the pandemonium which we like to call the South African Public Health Service, and promptly decided to head out for the high seas.

I almost fell off my chair when I saw what the rand had done just before my new paycheck on the cruise ship (getting paid in USD) - Despite being trapped in a floating prison I feel quite happy about it.

I opened an easy equities account and decided to split my savings between the USD account and ZAR account, buying similar ETFs. 

Does it make sense for me to buy S&P 500 in ZAR and USD? Should I try to time my contributions by buying ZAR ETFs when the rand is weak and USD ones when the rand is strong (for example if we head back down to R15 to a dollar?) 

If the rand does strengthen again I feel like I will get hit double because my salary will decrease and the ZAR ETFs that have offshore exposure will surely also take a knock. How can I protect myself against this?

Is it stupid if my TFSA and my discretionary investments mirror each other? Should I be throwing specific types of ETFs into my TFSA?

I see that some sectoral ETFs like the Satrix FINI have been "klapped" - do you think any of these have room for growth (which sector should I buy with my "F you" money?) 

On the offshore side of things, are there any interesting USD ETFs which could offer interesting types of exposure that we can't necessarily get access to from rand based products? I see there is an iShares HealthCare ETF and an INDIA ETF for example.

I am wishing everyone back home the best of luck and I can't wait for Cyril to open the airports so I can come home and help with the fight.

Mary 

I work in healthcare. Believe it or not, our job and salary are precarious right about now. I was fortunate to receive a bonus now and my question is :

Do I pay off my credit card of R12,500 or save the money to prepare for the unknown. 

Can you talk a bit more in depth about rebalancing the portfolio. If one uses the Satrix platform and EasyEquities to invest, do we still need to rebalance and how?

Thank you for all you do. I look forward to listening to all your shows. You are appreciated.

Skhumbuzo

What effect does junk status have on RSA retail bonds? Does the interest rate get better or worse?

Here’s a link to my friend’s drive-in. https://www.facebook.com/DineInDriveIn/